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
• 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 1

The correct option is D

It is the number of months of imports that could be paid for by a country’s international reserves
Import Cover measures the number of months of imports that can be covered with foreign exchange reserves available with the central bank of the country.

Eight to ten months of import cover is essential for the stability of a currency.