BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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RBI advances money to public whenever there is any emergency
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Commercial banks give fund to the RBI
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RBI advances necessary credit against eligible securities to financial institutions
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All of the above
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Detailed explanation-1: -As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.
Detailed explanation-2: -The correct answer is 2 only. A lender of last resort (LoR) is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In India, RBI is the lender of last resort.
Detailed explanation-3: -When commercial bank fails to get their financial requirements from other sources in the market, then they approach the RBI (central bank). The central bank gives loan to commercial banks. This situation termed as a lender of the last report.
Detailed explanation-4: -The Federal Reserve, or other central bank, typically acts as the lender of last resort to banks that no longer have other available means of borrowing, and whose failure to obtain credit would dramatically affect the economy.
Detailed explanation-5: -RBI lends money in a legal agreement with the banks that requires collateral. It can be securities and bonds. RBI hedges and leverages against securities from banks to lend monetary help. RR loans or transactions count as short-term borrowings.