Question

UPSC Prelims 2015 Question:

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 (Detailed Solution Below)

Option 3: dollars and other hard currencies

Detailed Solution

Explanation:

Liquidity may be defined as “ease of financing”; global liquidity then refers to the ease of financing in the global financial system. It is driven by market participants' attitudes toward risk, by their willingness to extend credit and central bank actions.
Global liquidity is often characterized by currency transformation. The imbalances in international payments are usually settled through dollars and other hard currencies.

Therefore, option (3) is the correct answer.

Subject: Economics | Exchange Rate

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