Question
Which of the following best describes the term ‘import
cover’, sometimes seen in the news?Solution
‘Import Cover’ is a term used to describe the number of months over which a country can pay for its’ imports from the International Reserves of the country. Import cover of reserves is a traditional trade-based indicator of reserve adequacy. It is defined in terms of the number of months of import equivalent to reserves. The excess of inflow of Foreign Exchange over the outflow of foreign exchange in a country gets credited to its’ international reserves account. This reserve can be used as a buffer to cushion against the uncertainties of future inflows.
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