Question

Why is the central bank called the “lender of last resort”?

Options

• It gives loans only to the government

• It lends only to foreign institutions

• It provides emergency funds to banks to prevent their failure

• It gives loans only to big industries

Answer 1

It provides emergency funds to banks to prevent their failure

Explanation :

As the lender of last resort, the central bank provides emergency liquidity to banks in crisis to prevent the banking system from collapsing.