Which of the following is ensured by the Central Bank when it functions as the"Lender of last resort"?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Commercial banks do not face any shortage of funds
When commercial banks fail to get financial assistance from any other way it approaches the Central bank who is considered as the lender of last resort. The central bank ensures the following function:
- Commercial bank does not face any shortage of funds
- Stability in the money market
- Enough liquidity in the financial market
- Economic disruption as a result of financial panics is prevented