Question

In many countries, one of the roles of the central bank is to provide loans to distressed financial institutions. What is the term for this?
- liquidity resource
- source of ultimate credit
- provider of fiduciary insurance
- lender of last resort
- bailout bank

Another potential role of central banks is to foster confidence in the banking system by making sure that people can retrieve their money even if a bank goes bankrupt. What is the term for this?
- banking promise
- deposit guarantee
- financially distressed institution clause
- deposit insurance

Answer 1

(1) Providing loans to distressed financial institutions is called: Lender of last resort

A lender of last resort is a lender that provides loans (usually short‑term) to banks in times of financial distress or crisis.

(2) Role of central bank in ensuring people can retrieve money from bankrupt bank is called: Deposit Insurance

Deposit insurance is an insurance system that protects depositors so that they do not lose their money if a bank fails.