When a central bank acts as lender of last resort, it normally provides emergency funds to:
Correct answer: A. Banks facing temporary liquidity problems
- A. Banks facing temporary liquidity problems
- B. All firms seeking higher profits
- C. Consumers buying ordinary goods
- D. Exporters avoiding every business loss
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.
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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.
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