Arrange the following conditions from most to least liquid form:

(A) Currency + Demand Deposit+Savings deposits with Post Office savings banks.

(B) Currency + Demand Deposit + Net time deposits of commercial banks.+ Total deposits with Post Office savings organizations.

(C) Currency + Demand Deposit.

(D) Currency + Demand Deposit + Net time deposits of commercial banks.

Choose the correct answer from the options given below:

The correct option is (C), (A), (D), (B).

This question is based on the measures of money supply in India (M1, M2, M3, and M4) defined by the Reserve Bank of India (RBI). Liquidity refers to how quickly and easily an asset can be converted into cash without losing its value. Currency in circulation and demand deposits are the most liquid forms of money, whereas time deposits and post office savings are less liquid.

Let us analyze each statement based on the standard RBI money supply classifications:

1. Condition (C): Currency + Demand Deposit.
This represents the M₁ (Narrow Money) measure, which consists of the most highly liquid assets (cash in hand and money in checking accounts that can be withdrawn at any time). Therefore, (C) is the most liquid form.

2. Condition (A): Currency + Demand Deposit + Savings deposits with Post Office savings banks.
This represents the M₂ measure of money supply. It includes all of M₁ plus savings deposits with post office savings banks, which are slightly less liquid than commercial bank demand deposits. Hence, (A) is less liquid than (C) but more liquid than the time-deposit-based measures.

3. Condition (D): Currency + Demand Deposit + Net time deposits of commercial banks.
This represents the M₃ (Broad Money) measure. Time deposits (like fixed deposits) have a fixed lock-in period and cannot be withdrawn instantly without penalties, making them less liquid than post office savings deposits. Therefore, (D) is less liquid than (A).

4. Condition (B): Currency + Demand Deposit + Net time deposits of commercial banks + Total deposits with Post Office savings organizations.
This represents the M₄ measure, which includes all components of M₃ along with the total deposits of post office savings organizations (excluding National Savings Certificates). Since it contains long-term, diverse, and less accessible saving funds, it is the least liquid form of money supply among all options.

Thus, arranging the conditions from the most liquid to the least liquid form gives the sequence:
(C) > (A) > (D) > (B).