Liquidity refers to the ease with which an asset can be converted into cash without loss of value. Currency is the most liquid asset as it is cash itself. Demand deposits (money in current accounts) are highly liquid as they can be withdrawn on demand. Savings deposits are generally less liquid than demand deposits as they may have certain withdrawal restrictions, but more liquid than time deposits. Time deposits (Fixed Deposits) are the least liquid among these, as premature withdrawal typically incurs a penalty. Therefore, the order of decreasing liquidity is Currency (4) > Demand deposits (1) > Savings deposits (3) > Time deposits (2), which is 4-1-3-2.
Consider the following liquid assets: Demand deposits with the banks Time deposits with the banks Savings deposits with the banks Currency The correct sequence of their decreasing order of liquidity is
Asked in PPSC CS Prelims 2013 · UPSC IAS 2013 · Topic: Money & Banking (Money: Functions, Forms, and Measures of Money Supply)
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