Question

RBI is often referred to as the “lender of last resort.” What does this mean?

Options

• RBI only lends to the wealthy

• RBI lends to the government but not to banks

• RBI provides a source of liquidity when other sources fail

• RBI only lends to foreign banks

Answer 1

RBI provides a source of liquidity when other sources fail.

Explanation:

In crisis situations, the RBI lends to banks when no one else will.