ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In India, RBI is the lender of last resort. Lender of last resort does not lend money to trade and industry bodies when they fail to borrow from other sources. Hence, statement 1 is incorrect.

Detailed explanation-2: -Lender of Last Resort 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-3: -The central bank is called the lender of last resort because it is capable of lending–and to prevent failures of solvent banks must lend–in periods when no other lender is either capable of lending or willing to lend in sufficient volume to prevent or end a financial panic.

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 is the lender of last resort for Commercial Banks.