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Money And Banking

Question
CBSEENEC12013454
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Explain the 'lender of last resort' function of a central bank.

Solution

Lender of last resort function of Central Bank implies that the Central Bank is under the obligation to provide funds against securities to the commercial bank as and when needed by them. When a commercial bank faces a financial crisis and fails to obtain funds from other sources, then the central bank provides them with the financial assistance in the form of credit. This role of the central bank saves the commercial bank from being bankrupt. Thus, the central bank plays the role of a guarantor for the commercial banks and maintains a sound and healthy banking system in the economy.

Some More Questions From Money And Banking Chapter

Give functional definition of money.

Give narrow definition and broad definition of money.

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Standard and Token coins.

Write short notes on the following:
Credit money

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or
Write short notes on the following:
High powered money.

What is liquidity trap?

What monetary system does India follow?

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