The correct sequence of liquid assets in decreasing order of liquidity is 4 (Currency) - 1 (Demand deposits) - 3 (Savings deposits) - 2 (Time deposits). Currency is the most liquid asset as it is readily available for transactions without any conversion or waiting period. Demand deposits follow as they can be accessed immediately through checks or withdrawals. Savings deposits, while accessible, may involve some delays or withdrawal limits, making them less liquid than demand deposits. Time deposits are the least liquid, as they typically require a fixed term to mature before funds can be accessed without penalties. Understanding liquidity is crucial for financial management and economic stability, concepts emphasized in UPSC preparation materials to gauge one's comprehension of financial systems.