Question map
Which of the following best describes the term 'import cover', sometimes seen in the news?
Explanation
Import cover refers to the number of months of imports that a country's foreign exchange reserves can finance. For example, if India's forex reserves are around $600 billion and monthly imports are around $60 billion, then these reserves provide import cover for 10 months.[1] The ratio of reserves to imports measures the number of months a country is able to finance its current level of imports.[2] The conventional rule of reserve cover of imports is 3 months.[3]
Options A, B, and C are incorrect as they represent different economic metrics[7] but are not the same as[4] 'import cover.'[6] Option A describes the import-to-GDP ratio, option B refers to total import value, and option C describes the trade balance ratio between countries. Import cover specifically relates to reserve adequacy and measures how long a country can sustain its imports using existing foreign exchange reserves without earning additional forex.
Sources- [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.27 Balance of Payment (BoP) > p. 108
- [2] https://www.bankofcanada.ca/wp-content/uploads/2010/02/wp05-38.pdf
- [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: Indiaâs Foreign Exchange and Foreign Trade > RESERVE ADEQUACY FEW MONTHS OF IMPORTS RULE VERSUS GUIDOTTI-GREENSPAN RULE > p. 497
PROVENANCE & STUDY PATTERN
Guest previewThis is a classic 'Term Definition' question derived from the External Sector chapter. It bridges static concepts (Balance of Payments) with recurring news headlines about Forex reserves. If you read 'Forex reserves rose to $X billion', the immediate next sentence in any quality report is 'covering Y months of imports'.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Is the term "import cover" (as used in news reporting) defined as the ratio of the value of imports to a country's Gross Domestic Product?
- Statement 2: Is the term "import cover" (as used in news reporting) defined as the total annual value of a country's imports?
- Statement 3: Is the term "import cover" (as used in news reporting) defined as the ratio of exports to imports between two countries?
- Statement 4: Is the term "import cover" (as used in news reporting) defined as the number of months of a country's imports that can be paid for by its international reserves?
This snippet presents a multiple-choice question listing (a) import cover = ratio of imports to GDP and (d) import cover = number of months of imports payable by international reserves, showing both formulations are seen in textbooks/questions.
A student could treat this as evidence that (a) is a proposed but contestable definition and compare it to other sources or standard usage to decide which is correct.
Explicitly describes 'Import Cover' as the number of months of imports that a country's forex reserves can finance (reserves á monthly imports).
One could extend this by computing reserves/monthly imports for a country and checking news usage to see if 'import cover' refers to months rather than a GDP ratio.
Gives a clear definition of GDP (aggregate domestic production), identifying what GDP measures and distinguishing it from other aggregates.
A student can use this to judge plausibility: compare the conceptual link between 'months of imports covered by reserves' and GDP to see which denominator (monthly imports vs GDP) fits the usual idea of 'cover'.
Also defines GDP as total domestic production and notes methods of calculation, reinforcing what GDP represents.
Use this to assess whether expressing 'import cover' as a ratio to GDP would meaningfully measure the ability of reserves to finance imports (likely less direct than months-of-imports measure).
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This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.
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This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.
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