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      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?
      A Current Account Balance Ă· Fiscal Deficit Correct Answer Incorrect Answer
      B Capital Account Inflows Ă· Foreign Exchange Reserves Correct Answer Incorrect Answer
      C Foreign Exchange Reserves Ă· Average Monthly Imports Correct Answer Incorrect Answer
      D Foreign Exchange Reserves Ă· External Debt Correct Answer Incorrect Answer
      E GDP Ă· Foreign Exchange Reserves Correct Answer Incorrect Answer

      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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