Question

Central Bank acts as a custodian of the cash preserves of commercial banks which means it ______________.

• A. acts as a lender of last resort
• B. as clearing agent
• C. maintains the cash reserves of the commercial banks
• D. none of the above

Answer 1

Answer: (C)

maintains the cash reserves of the commercial banks

Central bank is an apex regulatory institution that controls the entire banking system of a country. The central bank act as a custodian of the cash reserves of the commercial bank as the commercial banks have to maintain a proportion of their total deposits as reserves in the form of cash with the central bank as a part of legal requirement.