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Questions
How does the central bank act as a lender as the last resort?
Explain the function of the Central Bank (The Reserve Bank of India) as a lender of the last resort.
Why is the central bank referred to as the "lender of the last resort"?
With reference to the Central Bank, explain the following:
Lender of the last resort
Solution
- As a banker to the banks, the central bank (The Reserve Bank of India) acts as the lender of the last resort. In case the commercial banks fail to meet their financial requirements from other sources, they can, as a last resort, approach to the central bank for loans.
- The central bank gives loans to such banks through discounting of approved securities and bills of exchange.
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