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Questions
Central bank is the lender of the last resort. Explain.
The Central Bank is the apex monetary institution of the country. Explain its role of a lender of the last resort.
Solution
- As a banker to the banks, the central bank acts as the lender of the last resort. In other words, in case the commercial banks fail to meet their financial requirements from other sources, they can, as a last resort, approach the central bank for loans and advances.
- Thus, it saves banks from possible failure and banking system from a possible breakdown.
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