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
Correct Answer
Explanation
Option (d) is correct because import cover is a key indicator of external stability that measures the number of months a country can sustain its imports using its foreign exchange reserves. Option (a) is a common distractor as it describes the import-to-GDP ratio, which measures economic openness rather than the financial cushion available to meet payment obligations. The core concept being tested is external sector resilience and the adequacy of foreign exchange reserves within the Balance of Payments framework.
Balance of PaymentsForeign Exchange Reserves and Trade Indicatorsimport coverinternational reservesimportsmonthsforeign exchange