RBI bank play an important role …

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RBI bank play an important role of lender of last resort. Explain

Posted by Anuj Mandelia 5 years, 2 months ago

CBSE > Class 12 > Economics

3 answers

Kanishka Shilla 5 years, 2 months ago

1 .If a commercial bank fails to meet it's financial requirements from other sources, it can as a last resort, approach a central bank for loan and advances. Central bank helps it through discounting of approved security and bills of exchange . By this function central bank controls entire banking system of a country 2. Public usually shows confidence in banks and all depositers don't show up at a single point of time to withdraw their deposit but when people loose there confidence in banks they fear that bank may not have enough cash reserves . So they all may ho together to withdraw cash . So RBI how give guarantee of saving bank's solvency ....

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Anuj Mandelia 5 years, 2 months ago

Thank yogita for giving answer

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Yogita Ingle 5 years, 2 months ago

When a commercial bank faces financial crisis and fails to obtain funds from other sources, then the central bank plays the vital role of 'lender of last resort' and provides them with the financial assistance in the form of credit. This role of the the central bank saves the commercial bank from bankruptcy. Thus, the central bank plays the role of guarantor for the commercial banks and maintains a sound and healthy banking system in the economy.

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