NEWS – India’s foreign exchange reserves surged by $2.98 billion to $619.07 billion recently

FOREIGN EXCHANGE RESERVE

• Refer to a country’s holdings of foreign currencies and other assets denominated in foreign currencies
• Held by Reserve Bank of India and play a crucial role in supporting a nation’s currency and ensuring stability in its financial system
• India’s foreign exchange reserves comprise of;
  • Foreign currency assets (FCAs):These are maintained in currencies like the US dollar, euro, pound sterling, Australian dollar, and Japanese yen.
  • Gold
  • SDR (Special Drawing Rights):This is the reserve currency with the IMF.
  • RTP (Reserve Tranche Position):This is the reserve capital with the IMF
  • The biggest contributor to India’s Forex reserves is foreign currency assets, followed by gold.
• Foreign exchange reserves serve several purposes, including:

• • Stabilizing Currency Values: Reserves can be used to intervene in the foreign exchange market to stabilize the national currency’s value.
  • Meeting External Obligations: Reserves help countries meet their external obligations, such as servicing foreign debt.
  • Crisis Management: Adequate reserves provide a buffer during economic crises, helping countries manage balance of payments difficulties.
  • Building Confidence: High levels of reserves can enhance investor confidence and contribute to overall economic stability.