CA Foundation · Business Economics · Money Market
Which of the following is the main reason M1 is considered more liquid than M3?
M1 is more liquid than M3 because it excludes time deposits. Currency and demand deposits can be spent immediately, whereas time deposits must first be withdrawn or prematurely broken. M3 adds these less liquid deposits, so it is a broader but less liquid measure of money.
- AM1 includes post office deposits while M3 does not
- BM1 excludes time deposits, which cannot be spent directly without first being withdrawn or brokenCorrect
- CM1 is issued only by the RBI whereas M3 is issued by commercial banks
- DM1 includes only coins and notes held by banks
Explanation
M1 comprises currency and demand deposits, which can be used for payments immediately. M3 additionally includes time deposits, which are less liquid because they must be encashed or prematurely withdrawn before use. Option about post office deposits is wrong because those belong to wider measures, not M1.
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