Multiple Choice Questions on Why the Reserve Bank of India is known as lsquo lender of last resort rsquo 1 It provides lending fa........... for UPSC Civil Services Examination (General Studies) Preparation

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Multiple Choice Questions

Why the Reserve Bank of India is known as lsquo lender of last resort rsquo 1 It provides lending fa...........

Economic Affairs Types of Banks and Banking
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    Why the Reserve Bank of India is known as ‘lender of last resort’?

    1. It provides lending facilities to the banks at all times.

    2. It provides foreign exchange to the government for meeting its import obligations.

    Select the correct answer using the code given below. 

    1 only 

    Correct Answer

    2 only 

    Incorrect Answer

    Both 1 and 2 

    Incorrect Answer

    Neither 1 nor 2

    Incorrect Answer
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    Explanation:
    • When commercial banks need more funds in order to be able to create more credit, they may go to market for such funds or go to the Central Bank.
    • The central bank provides them funds through various instruments. This role of RBI, that of being ready to lend to banks at all times is an important function of the central bank, and due to this central bank is said to be the lender of last resort. Hence only statement 1 is correct.
    • Other main functions of the RBI are:
      o Banker to the Government
      o Foreign Exchange Management and Control

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