Which of the following best describes the term “import cover”, sometimes seen in the news?
Detailed Explanation:
Answer: Option 4 — It is the number of months of imports that could be paid for by a country's international reserves
Import cover is a key indicator of external sector stability that measures how many months of imports a nation can finance using its current foreign exchange reserves. It is calculated by dividing total foreign exchange reserves by average monthly imports. For example, if a country has $300 billion in reserves and monthly imports of $25 billion, its import cover is 12 months. A higher import cover indicates stronger ability to withstand balance of payments crises or sudden capital outflows. The Reserve Bank of India typically aims to maintain adequate import cover (generally 9-12 months) to ensure economic security. Option 1 describes import intensity relative to GDP, Option 2 refers to absolute import value, and Option 3 describes the export-import ratio, none of which capture the reserves-to-imports relationship that defines import cover.
Question 2 of 3 Foreign Exchange Reserves
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