In the context of international reserves, the 'Guidotti-Greenspan Rule' suggests that:
A. Reserves should equal total external debt
B. Countries should hold reserves at least equal to short-term external debt
C. Reserves should equal only three months of imports
D. Reserves are unnecessary under floating rates
Answer: Option B
Solution (By JKSSB Mock Tests)
The Guidotti-Greenspan rule is a rule of thumb recommending that emerging-market countries hold foreign-exchange reserves at least equal to their short-term external debt in order to reduce vulnerability to sudden stops.
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