Banking Awareness – Foreign Exchange Reserves

In this blog we will be giving a brief overview of the foreign exchange reserves of India.

This would definitely help you in the upcoming Banks and Governments Exams like IBPS Clerk, NIACL AO, IBPS SO, SBI PO etc. 

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What are Foreign Exchange Reserves ?

Foreign Exchange Reserves are the assets held on reserve by the central bank of a country ( RBI in India) in foreign currency. They are also called foreign currency reserves or foreign reserves. It is a common practice in nations around the world  to hold a significant amount of reserves in their foreign exchange. Most of these reserves are held in the U.S. dollar since it is the most traded currency in the world. 

What is the purpose of Foreign Exchange Reserves ?

These assets serve many purposes but most importantly these are held to ensure that a central government has backup funds if the national currency rapidly devalues or becomes altogether insolvent. Foreign currency helps to maintain liquidity in case of economic crisis. Foreign reserves are always required for a nation to meet its external obligations. These include international payment obligations, including sovereign and commercial debts. They also include financing of imports and the ability to absorb any unexpected capital movements.

What are the components of India’s Foreign Exchange Reserves ?

The components of India’s Foreign Exchange Reserves include the following :

• Foreign currency assets (FCA)
• Gold Reserves
• Special Drawing Rights (SDR)
• RBI’s Reserve position with International Monetary Fund (IMF)

This was all in this blog from us. We hope it helps you. We will be back soon with other informative blogs that can enhance your knowledge about the economy and financial system of India.

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