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 What is the correct sequence of these assets in the decreasing order of liquidity is?

The answer is D (4 - 1 - 3 - 2). Liquidity means how quickly an asset can be turned into spendable money without loss of value. Ranking from most to least liquid gives currency, then demand deposits, then savings deposits, then time deposits.

• Currency (4) is cash in hand. It is spendable at once, so it is the most liquid.
• Demand deposits (1) can be withdrawn by cheque or on demand, with no notice and no penalty.
• Savings deposits (3) are also withdrawable on demand, but banks limit the number of transactions and the method of withdrawal, so they are a notch less liquid than demand deposits.
• Time deposits (2) have a fixed maturity. Premature withdrawal usually attracts a lower interest rate or a penalty, so they are the least liquid of the four.

The concept links to the RBI's money supply measures. M1 is built on the most liquid components, and broader measures add time deposits. This is a standard Mains angle on monetary policy transmission.

Options A, B and C each reverse or misplace a key pair. A puts demand deposits above currency. B reverses the whole order. C ranks time deposits as the most liquid.

Trap: Aspirants often treat all bank deposits as equally liquid, or assume savings deposits are as liquid as demand deposits.