Context:
India’s foreign exchange reserves fell to a near 11-month low of $623.98 billion as of Jan. 17, extending their losing streak for a seventh straight week, RBI data showed.
What is Forex Reserve?
Foreign exchange reserves, also called forex reserves, are those assets a nation’s central bank holds to support the nation’s currency and financial stability.
What does forex reserves consist of?
- Foreign currency
- Those deposits made in foreign currencies such as dollars, Euros, or pound sterling.
- Gold
- Reserves of gold that would help act as a hedge to inflation
- Special drawing rights (SDRs)
- International reserve assets established by the IMF.
- IMF reserve position
- The share of a country and its voting rights in the IMF.
- Treasury bills
- Paper issued by the government.
- Banknotes
- Currency in paper.
- Bank deposits
- Money kept in the banks.
What do foreign exchange reserves do?
- They intervene in the foreign exchange market to affect the price of a currency.
- They give confidence in the currency and the economy.
- They can be used to meet balance of payments financing needs.
- They can be used as a basis for foreign borrowing
Who manages forex reserves in India?
- The Reserve Bank of India (RBI) manages India’s forex reserves.
