1
Question
What role
of RBI is known as ‘lender of last resort’?
What role of RBI is known as ‘lender of last resort’?
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Solution
When a
commercial bank faces financial crisis and fails to obtain funds from
other sources, then the central bank plays the vital role of ‘lender
of last resort’ and provides them with the financial assistance
in the form of credit. This role of the central bank saves the
commercial bank from bankruptcy. Thus, the central bank plays the
role of guarantor for the commercial banks and maintains a sound and
healthy banking system in the economy.
When a commercial bank faces financial crisis and fails to obtain funds from other sources, then the central bank plays the vital role of ‘lender of last resort’ and provides them with the financial assistance in the form of credit. This role of the central bank saves the commercial bank from bankruptcy. Thus, the central bank plays the role of guarantor for the commercial banks and maintains a sound and healthy banking system in the economy.
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