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Question 18

Which of the following best describes the term 'import cover', sometimes seen in the news?

AOptions

A) It is the ratio of value of imports to the Gross Domestic Product of a country

B) It is the total value of imports of a country in a year

C) It is the ratio between the value of exports and that of imports between two countries

D) It is the number of months of imports that could be paid for by a country's international reserves

BSolution

'Import cover' is an economic indicator that measures the adequacy of a country's foreign exchange reserves. It signifies how many months of a country's imports can be financed by its current stock of foreign exchange reserves. A higher import cover indicates a stronger external position and greater ability to withstand external shocks (like a sudden increase in import prices or a decrease in export earnings). For example, an import cover of 10 months means that a country's foreign exchange reserves are sufficient to pay for its imports for the next 10 months.

CStrategy

For economic terms frequently appearing in the news, always understand their precise definition and what they indicate about the health of an economy or a specific sector. Differentiate them from similar-sounding but distinct terms.

DSyllabus Analysis

This question falls under the Indian Economy section, specifically related to the balance of payments, foreign exchange reserves, and macroeconomic indicators.

EQuestion Analysis

Easy. 'Import cover' is a standard term in macroeconomics and international trade, commonly discussed in economic surveys and financial news.