Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Money and Banking

Question:

Which of the following is ensured by the Central Bank as "Lender of last resort"?

Options:

Commercial banks do not face any shortage of funds

Granting loans and advances to the government

Agent and advisor to the government

Both 2 and 3

Correct Answer:

Commercial banks do not face any shortage of funds

Explanation:

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:

  1. Commercial bank does not face any shortage of funds
  2. Stability in the money market
  3. Enough liquidity in the financial market
  4. Economic disruption as a result of financial panics is prevented