Match each Central Bank function or monetary policy instrument on the left with its corresponding operational description on the right.
- Lender of Last ResortProvision of emergency financial accommodation to commercial banks experiencing temporary liquidity distress to prevent systemic failure.
- Bank RateThe official interest rate at which the central bank rediscounts eligible first-class bills of exchange for commercial banks.
- Cash Reserve RatioThe statutory percentage of customer deposits that commercial banks must maintain in liquid form with the central bank.
- Special DepositsAn extraordinary quantitative instrument compelling commercial banks to lodge specified additional funds with the central bank to sterilize excess bank reserves.
Answer
Lender of Last Resort matches with the provision of emergency financial accommodation to commercial banks experiencing temporary liquidity distress. Bank Rate matches with the official interest rate at which the central bank rediscounts eligible first-class bills of exchange. Cash Reserve Ratio matches with the statutory percentage of customer deposits commercial banks must maintain in liquid form with the central bank. Special Deposits match with the extraordinary quantitative instrument compelling commercial banks to lodge specified additional funds with the central bank to sterilize excess reserves.
Each concept correctly aligns with its definitive mechanism: Lender of Last Resort protects against bank runs by providing emergency funds; Bank Rate determines the central bank's bill rediscounting fee; Cash Reserve Ratio dictates mandatory statutory liquidity balances; and Special Deposits sequester surplus commercial bank liquidity during periods of high inflationary pressure.
Step-by-Step Solution
Key Concept
Central Bank Functions and Monetary Policy Instruments
Estimated Time:1m 30s