Foreign exchange and imports

Q.  If a country can pay for imports for a longer duration it indicates which of the following scenarios?

1) Greater currency stability
2) Increasing import bill
3) Capacity to absorb external shocks
- Published on 15 Apr 16

a. 2, 3
b. 1, 3
c. 1, 2
d. All of the above

ANSWER: 1, 3
 
  • Higher import cover indicates greater currency stability and India’s capacity to absorb external shocks, such as the impact of an outflow of funds following a rate hike by the US Fed, and support its domestic economy.
  • Only higher foreign exchange can lead to higher import cover.
  • The higher import cover is also due to shrinking import bill.

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