Consider the following liquid assets : Demand deposits with the bank

Consider the following liquid assets :

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Demand deposits with the banks
Time deposits with the banks
Savings deposits with the banks
Currency

The correct sequence of these assets in the decreasing order of liquidity is

1-4-3-2

4-3-2-1

2-3-1-4

4-1-3-2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2013

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The correct sequence of the given liquid assets in decreasing order of liquidity is Currency, followed by Demand deposits, then Savings deposits, and finally Time deposits. This corresponds to the order 4-1-3-2.

Liquidity refers to the ease with which an asset can be converted into cash without affecting its price. Currency is the most liquid asset as it is readily spendable cash. Demand deposits (like current accounts) are highly liquid as funds can be withdrawn on demand. Savings deposits are generally less liquid than demand deposits due to possible limits on withdrawals, though in practice, they are often very liquid. Time deposits (like Fixed Deposits) are the least liquid among these options, as premature withdrawal incurs penalties.

This hierarchy of liquidity is fundamental to understanding monetary aggregates (like M1, M2, M3, M4) where assets are grouped based on their liquidity levels. M1 typically includes currency and demand deposits, being the most liquid forms of money.

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