Civil Services Prep

Prelims 2015 · Economy · Question 94

The problem of international liquidity is related to the non-availability of

  1. goods and services
  2. gold and silver
  3. dollars and other hard currencies
  4. exportable surplus

Answer

dollars and other hard currencies

  • (a) Goods and services: International liquidity is not about physical availability of goods/services; it concerns means of settling international payments. Verdict: Incorrect.
  • (b) Gold and silver: Historically gold mattered, but the standard issue of international liquidity refers more broadly to shortage of reserve assets, especially key currencies; silver is not central. Verdict: Incorrect.
  • (c) Dollars and other hard currencies: International liquidity means availability of internationally accepted reserve assets/convertible currencies to finance balance of payments gaps. Verdict: Correct.
  • (d) Exportable surplus: This affects trade capacity, not the stock of international reserve assets used for settlements. Verdict: Incorrect.
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