Question
Import cover is crucial for maintaining a stable
currency and avoiding a balance of payments crisis. Which of the following ratio best reflects the import cover of a nation?Solution
Import cover measures how many months of imports a country's foreign exchange reserves can pay for, indicating its economic stability and ability to withstand external shocks. A higher import cover suggests a stronger economy, while a lower cover indicates potential vulnerability. India’s import cover typically fluctuates between 8–10 months, a sign of comfortable external liquidity. Ratios like A or D describe debt sustainability or fiscal-external linkages, not reserve adequacy.
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