What are the major components of India’s Foreign Exchange Reserves? What are the potential benefits of maintaining an optimum level of Foreign Exchange Reserves in the country?
Answer: The forex reserves refer to the assets the central bank holds to provide import cover and protect against external shocks. The components of forex reserves are foreign currency assets, gold, special drawing rights and the reserve position in the International Monetary Fund.
The potential benefits of maintaining an optimum level of Foreign Exchange Reserves in the country are:
- Assist the government in meeting its foreign exchange needs and external debt obligations.
- Help in checking the depreciation of rupee.
- Serves as a cushion in the event of a Balance of Payment crisis and limit any vulnerability because of a sudden ....
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