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 in decreasing order of Liquidity is

1. 1-4-3-2
2. 4-3-2-1
3. 2-3-1-4
4. 4-1-3-2

Explanation

Option (d) is correct

• Liquidity refers to how easily and quickly an asset can be converted into cash without significant loss in value.
• Currency is the most liquid asset as it is already in the form of cash and can be used immediately for transactions.
• Demand deposits with the banks are also highly liquid as they can be withdrawn on demand, typically without any limitations or penalties.
• Savings deposits with the banks are slightly less liquid than demand deposits. While they can generally be withdrawn without penalties, there might be some restrictions or limits on the number or amount of transactions.
• Time deposits with the banks are the least liquid among the options. These deposits, like fixed deposits, have a set maturity date, and withdrawing funds before this date often results in penalties or loss of accrued interest.
• Therefore, the sequence in decreasing order of liquidity is:
  • Currency
  • Demand deposits with the banks
  • Savings deposits with the banks
  • Time deposits with the banks

Answer: (d) 4-1-3-2; Difficulty Level: Easy