Question

The Central Bank provides, direct or indirect, financial assistance to the Commercial bank when the latter is facing severe liquidity problem. Hence, Central Bank ______.

Options

• has a monopoly of note issue.

• acts as banker to the government.

• acts as controller of credit.

• acts as lender of the last resort.

Answer 1

The Central Bank provides, direct or indirect, financial assistance to the Commercial bank when the latter is facing severe liquidity problem. Hence, Central Bank acts as lender of the last resort.

Explanation:

When the Central Bank provides financial assistance to a commercial bank in an emergency, it serves as the lender of last resort.