Open market policy implies the purchase and sale of government securities. In a broader sense open market operations may be said to cover purchases and sale of equities, and gold and foreign exchange, besides government securities.
Open market operations influence the market trends by varying the total amount of money in circulation and the power of the commercial banks to create more credit. Purchases or sales of securities in the open market will be followed by a decrease or increase respectively of the total amount of money in circulation. The cash reserves of the commercial banks, on which the very superstructure of credit stands, will correspondingly contract or expand.