Reserve Bank is the only institution which can issue currency. The role of RBI is to lend money to all commercial banks at all times. This function of RBI is called lender of Last Resort. RBI influences money supply by buying or selling of bonds issued by the government in open market. When RBI  buys a government bond in the open market it pays for it by giving a cheque. This cheque increases the total amount of reserve in the economy and thus increases money supply. Selling of bonds by RBI decreases the money supply. When Central Bank buys the security this type of agreement is called repurchase agreement and the rate at which the money is lent in this way is called Repo Rate. RBI also influences money supply by changing the rate at which it gives loans to commercial banks called Bank rate.

Lender of last resort function of RBI means ______.

It provides funds at all times to commercial banks

The correct answer is option (3) : It provides funds all times to commercial banks

The lender of last resort function of the Reserve Bank of India (RBI) means that the RBI provides funds to commercial banks in times of financial difficulty or when they are unable to obtain funds from other sources. This ensures stability in the banking system and helps prevent bank failures.

Lender of last resort : The function of the monetary authority of a country in which it provides guarantee of solvency to commercial banks in a situation of liquidity crisis or bank runs.