UPSC Prelims 2015 – Question 94

94.The problem of international liquidity isrelated to the
non-availability of

1. a) goods and services
2. b) gold and silver
3. c) dollars and other hard currencies
4. d) exportable surplus

The correct answer is Option 3. 

• International liquidity  
  • It is associated with international payments that arise out of international trade in goods and services. 
  • It consists of all the resources that are available to the monetary authorities of countries to meet the balance of payments deficits. 
  • Such liquidity ranges from assets readily available to resources that become available only after extensive negotiation. 
  • The primary medium of international liquidity is gold and those foreign currencies which are universally acceptable in the settlement of international transactions. 
  • Since the dollar is the dominant worldwide currency in the forex market, issues with global liquidity are tied to the lack of availability of the dollar and other related currencies. Hence, Option 3 is correct. 
  • The problem of international liquidity exists essentially for developing countries. 

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