When a central bank acts as lender of last resort, it normally provides emergency funds to:
Correct answer: D. Banks facing temporary liquidity problems
- A. Exporters avoiding every business loss
- B. All firms seeking higher profits
- C. Consumers buying ordinary goods
- D. Banks facing temporary liquidity problems
Explanation
The lender of last resort function supplies short-term liquidity to otherwise viable banks that cannot obtain funds normally. It is intended to prevent liquidity stress from spreading through the banking system, not to finance every unprofitable activity.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Finance and Banking Basics
Business finance covers capital requirements, sources of funds, budgeting, cash flow, investment decisions and basic financial statements and ratios. Banking includes commercial bank functions, deposits, loans, credit creation, interest and the role of a central bank, including its monetary policy and regulatory functions.
Practise Finance and Banking Basics
30 free Finance and Banking Basics MCQs from Introduction to Business, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Introduction to Business questions like this
Introduction to Business is on this paper prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for it.
More Finance and Banking Basics questions
What does a crossed cheque normally require before its proceeds can be paid to the recipient?
What is the main effect of diversification in an investment portfolio?
Which ratio is most directly used to assess a firm's ability to pay interest from operating earnings?
If the market price of an existing bond rises while its coupon payment stays unchanged, its current yield will generally: