In India, the central banks function as the lender of last resort usually refers to which of the following? 1. Lending to trade and industry bodies when they fail to borrow from other sources 2. Providing liquidity to the banks having a temporary crisis 3

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Q: (IAS/2021)
In India, the central bank’s function as the lender of last resort’ usually refers to which of the following?
1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,119,93,16,119,60,17

keywords: 

{'central bank': [0, 0, 1, 2], 'last resort': [0, 0, 0, 1], 'lender': [0, 0, 1, 2], 'banks': [5, 6, 5, 25], 'budgetary deficits': [0, 1, 0, 2], 'india': [8, 1, 7, 13], 'function': [11, 2, 3, 13], 'governments': [1, 0, 0, 0], 'temporary crisis': [0, 0, 0, 1]}

The correct answer is 2 only. "Lender of last resort" is a function of the central bank to provide liquidity to commercial banks and financial institutions that face difficulty in borrowing from other sources during a financial crisis or a bank run. This helps to prevent the collapse of the banking system and maintain financial stability. The central bank can provide short-term loans to these institutions and also act as a buyer of last resort for their assets. The central bank does not lend to trade and industry bodies, nor does it finance budgetary deficits of the government.