Which of the following best describes the term ‘import cover’, sometimes seen in the news?
[amp_mcq option1=”It is the ratio of value of imports to the Gross Domestic Product of a country” option2=”It is the total value of imports of a country in a year” option3=”It is the ratio between the value of exports and that of imports between two countries” option4=”It is the number of months of imports that could be paid for by a country’s international reserves” correct=”option4″]
This question was previously asked in
UPSC IAS – 2016
– It indicates how many months a country can continue to pay for imports if its sources of foreign exchange earnings (like exports, remittances, capital inflows) were to cease.
– A higher import cover indicates a stronger external position and greater resilience to external shocks. A common benchmark is 3-4 months of import cover, considered adequate by many international financial institutions.