Question

Arrange the following components of monetary aggregates in descending order as per their liquidity: 

(A) currency notes 
(B) demand deposits 
(C) time deposits 
(D) money market mutual fund 
Choose the correct answer from the options given below: 
 

• A. (A), (B), (C), (D)
• B. (B), (A), (C), (D)
• C. (D), (A), (B), (C)
• D. (C), (B), (D), (A)

Hint:

Liquidity is an important concept when evaluating assets, as it impacts their ability to be converted to cash.

Answer 1

The Correct Option is A

 

Step 1: Overview of monetary aggregates. 
Monetary aggregates are ranked according to their liquidity, with currency being the most liquid asset.

Step 2: Liquidity Order of Components: 
- (A) Currency notes are the most liquid asset as they are immediately usable for transactions. 

- (B) Demand deposits are highly liquid but slightly less so than currency. 

- (C) Time deposits have a fixed term and are less liquid than demand deposits. 

- (D) Money market mutual funds, while relatively liquid, are the least liquid among these options.

Step 3: Correct Order. 
The correct order of liquidity is: - First, currency notes (A). - Then, demand deposits (B). - Followed by time deposits (C). - Finally, money market mutual fund (D).

Step 4: Conclusion. 
The correct order is (A), (B), (C), (D), so the correct answer is (1).