Explain the function "lender of the last resort" of central bank.
OR
Explain the function "clearing house agent" of central bank.
Explain the function "lender of the last resort" of central bank.
OR
Explain the function "clearing house agent" of central bank.
As a lender of the last resort:
In case the commercial bank fails to meet their financial requirements 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 helps the financial structure of the country from collapsing. The direct lending to the commercial bank is referred to as lender to the last resort function of the central bank.
OR
As a clearing agent:
Central bank acts as a clearing house for the bankers. Central bank can easily settle the claims of various banks against each other simply by book entries of transfer from and to their accounts. This method of settling the account is called clearing house function of the central bank.
The representatives of different banks meet daily in the clearing house to settle their bank payments. The differences between the various banks at the end of the day of each clearing house are settled through account entries. This strengthens the banking system of the country.
As a lender of the last resort:
In case the commercial bank fails to meet their financial requirements 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 helps the financial structure of the country from collapsing. The direct lending to the commercial bank is referred to as lender to the last resort function of the central bank.
OR
As a clearing agent:
Central bank acts as a clearing house for the bankers. Central bank can easily settle the claims of various banks against each other simply by book entries of transfer from and to their accounts. This method of settling the account is called clearing house function of the central bank.
The representatives of different banks meet daily in the clearing house to settle their bank payments. The differences between the various banks at the end of the day of each clearing house are settled through account entries. This strengthens the banking system of the country.
