Question

UPSC Prelims 2016 Question:

Which of the following best describes the term ‘import cover’, sometimes seen in the news?

1. It is the ratio of value of imports to the Gross Domestic Product of a country
2. It is the total value of imports of a country in a year
3. It is the ratio between the value of exports and that of imports between two countries
4. It is the number of months of imports that could be paid for by a country’s international reserves

Answer (Detailed Solution Below)

Option 4: It is the number of months of imports that could be paid for by a country’s international reserves

Detailed Solution

Explanation :

Import Cover is defined in terms of the number of months of import equivalent to reserves. It is an important indicator of the stability of the currency. It is also a measure of the adequacy of its reserves as a hedge against a crisis.

Therefore, option (4) is the correct answer.

Relevance: In January 2016, As per RBI Report, Import cover increased to 9.8 months.

Subject: Economics | Balance of Payment and Foreign Reserves

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