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Question
What is meant by the following function of the Central bank:
Lender of the last resort
Solution
In case the commercial bank fails to meet their financial requirement from other sources they can approach the Central Bank as a last resort for loans and advances. Central Bank helps these banks by discounting approved securities and bills of exchange or providing loans against their securities. By providing temporary financial help, Central Bank saves the financial structure of the country from collapse. Direct lending to the commercial bank is referred to as lender to the last resort function of Central Bank.
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