medium · Corporate Credit Analysis
The Emerging Republic of Z has $40B in foreign exchange reserves. Its annual imports total $150B and its short-term external debt (by remaining maturity) is $30B.
Based on the reserve adequacy metrics, which statement is most accurate?
- The reserves provide approximately 3.2 months of import cover, which is near the minimum adequacy threshold.
- The reserves provide roughly 5.5 months of import cover, a level generally seen as very strong.
- The reserves are insufficient overall, since they do not fully cover 100% of the annual import bill.
- The Greenspan-Guidotti rule is violated here because total reserves are lower than total external debt outstanding.
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