In India, the central bank’s function as the ‘lender of last resor

1.	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 sources2. Providing liquidity to the banks having a temporary crisis3. Lending to governments to finance budgetary deficitsSelect the correct answer using the code given below.1. 1 and 22. 2 only3. 2 and 34. 3 only
Answer» Correct Answer - Option 2 : 2 only The correct answer is 2 only. A lender of last resort (LoR) is an institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In India, RBI is the lender of last resort. Lender of last resort does not lend money to trade and industry bodies when they fail to borrow from other sources. Hence, statement 1 is incorrect. The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy. Hence, statement 2 is correct. RBI does lend to governments to finance budget deficits but it does not come under Lender of last resort. Hence, statement 3 is incorrect.

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 sources2. Providing liquidity to the banks having a temporary crisis3. Lending to governments to finance budgetary deficitsSelect the correct answer using the code given below.1. 1 and 22. 2 only3. 2 and 34. 3 only

Answer» Correct Answer - Option 2 : 2 only

The correct answer is 2 only.

A lender of last resort (LoR) is an institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
In India, RBI is the lender of last resort.
Lender of last resort does not lend money to trade and industry bodies when they fail to borrow from other sources. Hence, statement 1 is incorrect.
The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy. Hence, statement 2 is correct.
RBI does lend to governments to finance budget deficits but it does not come under Lender of last resort. Hence, statement 3 is incorrect.