In India, the central bank's function as the 'lender of last resort' usually refers to which of the…
In India, the central bank's function as the 'lender 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.
1 and 2
2 only
2 and 3
3 only
Solution
The RBI's role as 'lender of last resort' refers specifically to providing liquidity to banks that are facing a temporary liquidity crisis. It does not lend directly to trade/industry or to finance budget deficits in the standard meaning of the term.