CFA Practice Question

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CFA Practice Question

When we say that one of the functions of a central bank is to be a lender of last resort, we meant that the central bank ______

A. serves as a clearinghouse for interbank payments.
B. ensures that banks are financially sound.
C. tries to make bank panics less likely.
Correct Answer: C

User Contributed Comments 9

User Comment
danlan What does this one mean?
eddeb Lender of last resort : Central banks will make sure banks meet their reserve requirements. If there is panic (people withdrawing all their money at the same time) the central banks will lend this money to banks.

It gives confidence in the banking system.
julamo so in a way the central bank makes sure that banks are financially sound...
StanleyMo that's what happening now..
ROJIE I think it is more of ensuring the bank is financially sound, bec. if the banks financial position are ok, then central bank should only act as the last resort of the bank? B makes sense ,C make more sense I think?
StanleyMo citibank shall thanks FED :D
tmarchand hilarious question...choice d: all of the above and savior for insolvent banks.
choas69 good question it clarified it deeply enough to reach the G spot!
kingirm last resort means central banks will provide liquidity (money) to banks for their needs, if they cannot borrow from anywhere else... fed fund rates stands for the price for this. if a bank cannot find money to pay its debts, it will go and get it from central bank. CB guarantees this.
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