Money and banking

Indian Economy (CDS)

Title

45:30

8 of 24 completed

5 of 15 completed

38 of 100 completed

8 of 20 completed

Indian Economy - Understanding the basics of Indian economic system

In India, the central bank’s function as the lender of last resort’ usually refers to which of the following?

Lending to trade and industry bodies when they fail to borrow from other sources
Providing liquidity to the banks having a temporary crisis
Lending to governments to finance budgetary deficits

Select the correct statement.

1&2 only

2 only

2&3 only

All of the above

Only statement 2nd is correct.

A lender of last resort is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
The lender of last resort functions to protect individuals who have deposited funds and to prevent customers from withdrawing out of panic from banks with temporary limited liquidity. Commercial banks usually try not to borrow from the lender of last resort because such action indicates that the bank is experiencing a financial crisis.

Hence option 1st is correct.

By: Shubham Tiwari