Explain the following functions of the Central Bank :

(i) Lender of last resort

(ii) Banker to the Government

a)

● When the commercial banks have used all their resources to meet their financial needs, they resort to the central bank of the country in times of liquidity crisis.

● As a lender of last resort, the central bank gives them financial accommodation.

● This is done either by redeeming their eligible securities or bills of exchange. or by providing loans against their securities.

● This saves the bank from any possible case of failure and avoids a breakdown.

b)

● A central bank is a bank to the government.

● It performs all the banking functions as provided by the commercial banks to the customers.

● The government has deposits kept in the central bank.

● The central bank undertakes all the interbank transfers of the government.

● It provides agency services to the government and manages public debt.

● It provides advisory services regarding money and capital market, economic policy, etc.