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    Question

    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. Correct Answer Incorrect Answer
    B It is the total value of imports of a country in a year. Correct Answer Incorrect Answer
    C It is the ratio between the value of exports and that of imports between two countries. Correct Answer Incorrect Answer
    D It is the number of months of imports that could be paid for by a country’s international reserves. Correct Answer Incorrect Answer
    E It is the production value of the farmer in one season. Correct Answer Incorrect Answer

    Solution

    ‘Import Cover’ is a term used to describe the number of months over which a country can pay for its’ imports from the International Reserves of the country. Import cover of reserves is a traditional trade-based indicator of reserve adequacy. It is defined in terms of the number of months of import equivalent to reserves. The excess of inflow of Foreign Exchange over the outflow of foreign exchange in a country gets credited to its’ international reserves account. This reserve can be used as a buffer to cushion against the uncertainties of future inflows.

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