Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?

1. A

   Conducting 'Open Market Operations'

   Open Market Operations. Selling/buying G-secs to mop up or inject the rupees created by forex intervention — sterilisation.

2. B

   Oversight of settlement and payment systems

   Oversight of payment systems. A regulatory function, not sterilisation.

3. C

   Debt and cash management for the Central and State Governments

   Debt and cash management for governments. Fiscal agency, not sterilisation.

4. D

   Regulating the functions of Non- banking Financial Institutions

   Regulating NBFCs. Supervision, not sterilisation.

Summary. Official key is (a). Sterilisation is offsetting the domestic-money effect of forex intervention. RBI does it mainly through open market operations (and similar liquidity tools). Payment-system oversight, government cash management and NBFC regulation are other RBI jobs.