Question
In India, the central bank’s function as the 1ender of last resort’ usually refers to which of the following?
1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.
(a) 1 and 2
(b) 2 only
(c) 2 and 3
(d) 3 only
Answer:
B
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Explanation:
In India, the central bank's function as the "lender of last resort" primarily refers to providing liquidity support to banks facing temporary financial difficulties. When banks face a shortage of funds or a liquidity crisis, they can approach the central bank for short-term loans or other forms of liquidity support to meet their obligations and maintain stability in the financial system.