By buying treasury bills; the Central Bank of Nigeria intends to?

A. increase in money supply in the economy
B. reduce the cash reserve ratio for banks
C. reduce money supply in the economy
D. increase the capital base of commercial banks

Correct Answer:

Option C – reduce money supply in the economy

Explanation

By buying treasury bills, the Central Bank of Nigeria intends to reduce the excess money in circulation in the economy. When the CBN issue treasury bills, they are inviting the public to invest in the debt security. This means, people will buy the security for a maturity period of 0-3 months.

By doing this, the available money held by households is reduced. It is also used to control inflation.