In: Economics
The difference between Dynamic and Defensive Open Market operations are listed below
1. Dynamic Open Market Operations are long term strategies which are implemented to increase or decrease the supply of currency in the country, which results in a permanent change. Whereas Defensive Open Market operations are implemented to offset seasonal, temporary or maybe accidental changes in supply of currency in the country; it is done in anticipation or as a response to a market event.
2. Dynamic Open market Operations are intended to change the Reserve level or Monetary base, whereas Defensive are intended to offset changes in other factors that affect reserves and the monetary base, such as Treasury deposits with the Fed or changes in float.
3.Dynamic Open market Operations are done through sale and purchase transactions directed by FOMC, whereas Defensive Open market Operations are carries out through Repo( Repuchase ) agreement (n which the Fed lends money to commercial banks) , in order to increase supply of currency and Reverse Repo agreement (in which the banks purchase securities from the Fed) in order to reduce the currency supply.