8/12/2015

BankersAdda:ABriefonFOREIGNEXCHANGERESERVES

ABriefonFOREIGNEXCHANGERESERVES
DearReaders,
Todayweareprovidingyouthenotesononeofthemostimportantfinancial
termsFOREIGNEXCHANGERESERVES.Thisisimportantasitcanbe
askedintheGeneralAwarenesssectionintheupcomingexams.
Asitwasinthenewsthat,ourcountry'sforeignexchangereservesroseby
$321.7millionto$353.648billionintheweektoJuly24onaccountof
increaseinforeigncurrencyassets.Thecountry'sgoldreservesremained
unchangedat$19.074billion.ThespecialdrawingrightswiththeInternational
MonetaryFundwereupby$5.8millionto$4.024billionintheweekunder
review,whilethecountry'sreservepositionwiththeFundalsoroseby$1.8
millionto$1.304billion.

AsonJuly24,2015
ComponentsofForex
TotalReserves
1.1ForeignCurrencyAssets
1.2Gold
1.3SDRs
1.4ReservePositionintheIMF

Bn.
US$Mn.
1
2
22,551.8 353,648.1
20,995.3 329,245.4
1,216.1
19,074.3
257.1
4,024.2
83.3
1,304.3

LetsdiscussWhatactuallyisFOREX?
Reservesaremaintainedbycountriesformeetingtheirinternationalpayment
obligationsbothshortandlongterms,includingsovereignandcommercial
debts,financingofimports,forinterventionintheforeigncurrencymarkets
duringperiodsofvolatility,besideshelpingtoboosttheconfidenceofthe
marketintheabilityofacountrytomeetitsexternalobligationsandto
absorbanyunforseenexternalshocks,contingenciesorunexpectedcapital
movements.
India'sforeignexchangereservescompriseforeigncurrencyassets,goldand
specialdrawingrightsallocatedtoitbytheInternationalMonetaryFund(IMF)
inadditiontothereservesithasparkedwiththefund.Foreignexchange
reservesareheldandmanagedbytheRBI.
TheForeigncurrencyassetsareinvestmentmainlyininstrumentsabroad
whichhavethehighestcreditratingandwhichdonotposeanycreditrisk.
Theseincludesovereignbonds,treasurybillsandshorttermdepositsintop
ratedglobalbanksbesidescashaccounts.
TheSpecialDrawingRight(SDR)isaninterestbearinginternational
reserveassetcreatedbytheIMFin1969tosupplementotherreserveassets
ofmembercountries.TheSDRisbasedonabasketofinternational
currenciescomprisingtheU.S.dollar,Japaneseyen,euroandpound
sterling.Itisnotacurrency,noraclaimontheIMF,butispotentiallyaclaim
onfreelyusablecurrenciesofIMFmembers.Itcanbeheldandusedby
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8/12/2015

BankersAdda:ABriefonFOREIGNEXCHANGERESERVES

membercountries,theIMF,andcertaindesignatedofficialentitiescalled
"prescribedholders"butitcannotbeheld,forexample,byprivateentities
orindividuals.

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