UPSC Prelims 2013 · Question 24 of 99
UPSC Prelims 2013 question on Liquid Assets Ranking
- ExamUPSC CSE
- Year2013
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeChronology
Consider the following liquid assets:
1. Demand deposits with the banks
2. Time deposits with the banks
3. Savings deposits with the banks
4. Currency
The correct sequence of these assets in the decreasing order of liquidity is:
Show answer
Answer: D. 4-1-3-2
Verdict
Correct Answer: 4-1-3-2
Analysis
According to the official UPSC Answer Key for Prelims 2013, the correct sequence is 4-1-3-2.
Liquidity means how quickly an asset can be converted into cash or used for transactions without loss of value.
1. Currency — Most Liquid
Currency is the most liquid asset because it is already cash.
It can be used immediately as a medium of exchange without any conversion.
2. Demand deposits — Highly Liquid
Demand deposits can be withdrawn or transferred on demand.
They include deposits in current accounts and are almost as liquid as currency.
3. Savings deposits — Moderately Liquid
Savings deposits are liquid, but may have certain withdrawal limits or procedural restrictions.
Therefore, they are slightly less liquid than demand deposits.
4. Time deposits — Least Liquid
Time deposits include fixed deposits and recurring deposits.
They are locked for a fixed period and premature withdrawal may involve delay or penalty.
Hence, they are the least liquid among the given options.
Extra UPSC info
* Currency and demand deposits together form the most liquid part of money supply.
* M1 includes currency with the public, demand deposits with banks and other deposits with RBI.
* M3 is called broad money and includes M1 plus net time deposits with banks.
* Time deposits are also called near money because they are not immediately usable for transactions.
* Higher liquidity means easier conversion into cash without loss of value.
* RBI uses money supply aggregates to assess liquidity conditions in the economy.
How to crack it
Currency is the most liquid, followed by demand deposits, savings deposits and time deposits; hence the correct decreasing order is 4-1-3-2.