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Which of the following best describes the term ‘import cover’, sometimes seen in the news

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

(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

Answer:

(d)

CA

Explanation

Import cover is an important indicator of the stability of the currency. It measures the number of months of money available in the national bank to cover the cost of imports or the stock of foreign exchange reserves in terms of months of retained imports of goods as at end of year. During the currency crisis of 2013, when foreign exchange reserves fell to around $275 billion, import cover dipped to around seven months. Tikdam: