(a) Conducting ‘Open Market Operations’ 

(b) Oversight of settlement and payment systems 

(c) Debt and cash management for the Central and State Governments 

(d) Regulating the functions of Nonbanking Financial Institutions 

Ans: a

Explanation:

Sterilization provides a way out of the problem of clash between the goals of external balance and internal balance. Sterilization refers to the action by the Central Bank of a country to offset or cancel the impacts of its foreign exchange market intervention on the moeny supply through open market operations. The sterilization measures can be used both to offset the reduction in money supply when in case of current account deficit the Central Bank of the country sells foreign exchanges omn the market and also when the Central bank offset the effect of increase in money supply when it buys foreign exchange from the market in case of surplus in balance of payments or when large capital inflows are coming into the economy.

Through sterilization, the central bank tries to off set the changes in foreign exchange reserve either by changing net domestic assets or by changing the reserve deposit. While the purchase intervention is sterilized by issuing bonds, purchasing bonds from the market sterilizes the sale intervention. 

Sterilization is the process of neutralizing the changes in the net foreign assets (NFA) (which are caused by the intervention) by adjusting the net domestic assets (NDA) with the objective of maintaining the stability of the monetary base. As a process, sterilization neutralizes the impact of exchange market operations on domestic money supply with the help of money market instruments

RBI uses Open Market Operation (OMO) as the primary sterilization instrument

Open Market Operations (OMOs): These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively.

Market Stabilisation Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The cash so mobilised is held in a separate government account with the Reserve Bank. 

Hence option a is correct.

Read: Solved Economy PYQs With Explanation 2023 UPSC Prelims