Question

ICB Bank receives a cheque of ₹ 25,000 from Azim Bank. ICB Bank settles its claim through the central bank of the country.

Which one of the following functions of central bank is indicated here?

Options

• Lender of last resort 

• Clearing house facility

• Controller of money supply 

• Fiscal agent of the government

Answer 1

Clearing house facility

Explanation:

When one commercial bank settles a cheque (mutual claim) through the central bank, the central bank acts as a clearing house, providing a convenient, central mechanism to settle interbank claims by book-entry adjustments of reserves.