Adequacy of foreign exchange reserves of a country is captured by which of the following indicators?
- Reserves to import ratio
- Reserves to external debt ratio
- Reserves to GDP ratio
- Reserves to monetary aggregates
Select the correct answer using the code below:
1 and 3 only
1, 2, 3 and 4
2, 3 and 4 only
1, 2 and 4 only
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This question was previously asked in
UPSC CAPF – 2023
1. Reserves to import ratio: Measures the capacity to cover future import bills.
2. Reserves to external debt ratio: Indicates the ability to meet external debt obligations, particularly short-term debt.
3. Reserves to GDP ratio: Provides context on the size of reserves relative to the overall economy.
4. Reserves to monetary aggregates (like M2): Assesses vulnerability to potential capital flight if domestic money supply seeks to convert to foreign currency.
All these ratios provide valuable insights into different aspects of reserve adequacy and external vulnerability.