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      Question

      The Reserve Bank of India acts as the "Lender of Last

      Resort". What does this specific function imply?
      A It lends money to the Central Government for infrastructure projects. Correct Answer Incorrect Answer
      B It provides loans to retail customers when commercial banks refuse them. Correct Answer Incorrect Answer
      C It provides liquidity to commercial banks when they face a severe financial crisis and cannot raise funds from any other source. Correct Answer Incorrect Answer
      D It acts as the final guarantor for foreign institutional investments. Correct Answer Incorrect Answer
      E It funds Non-Banking Financial Companies (NBFCs) exclusively during bankruptcies. Correct Answer Incorrect Answer

      Solution

      As the lender of last resort, the RBI prevents the collapse of the banking system by providing emergency liquidity to solvent but illiquid banks.

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