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Forex Reserves

Forex Reserves:

According to the recent data from the Reserve Bank of India, India’s Foreign Exchange (Forex) Reserves surged by $ 5 billion to $ 609 billion in the week ended 25th June, 2021.

  • Increase in the Foreign Currency Assets (FCA) is the major component of overall reserves.

Changes in forex reserves holdings:

  • FCA rose by $ 4.7 billion to $ 566 billion.
  • Gold reserves rose by $ 365 million to $ 36.296 billion.
  • The special drawing rights (SDRs) with the International Monetary Fund (IMF) remained unchanged at $1.498 billion.
  • The country’s reserve position with the IMF increased marginally by $ 1 million to $ 4.965 billion in the week.

Foreign Exchange Reserves:

  • Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
  • It needs to be noted that most foreign exchange reserves are held in US dollars.

India’s Forex Reserve include:

  • Foreign Currency Assets
  • Gold reserves
  • Special Drawing Rights
  • Reserve position with the International Monetary Fund (IMF).

Objectives of Holding Forex Reserves:

  • Supporting and maintaining confidence in the policies for monetary and exchange rate management.
  • Provides the capacity to intervene in support of the national or union currency.
  • Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.