Forex reserves down $469 million to $574.82 billion | UPSC CURRENT AFFAIRS

Forex reserves down $469 million to $574.82 billion


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After touching a lifetime high in previous week, the country’s foreign exchange reserves declined $469 million to $574.821 billion in the week ended November 27, RBI data showed.

In the reporting week, the reserves declined despite an increase in foreign currency assets (FCA), a major component of the overall reserves.

FCA rose by $352 million to $533.455 billion, according to the weekly data by the Reserve Bank of India (RBI).

Forex Reserves:

  • Definition: Foreign exchange reserves are assets denominated in a foreign currency that are held on reserve by a central bank. These may include foreign currencies, bonds, treasury bills and other government securities.
  • Objectives Behind 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.
  • Forex Reserves in India: Forex reserves are external assets accumulated by India and controlled by the RBI in the form of:
    • Gold
    • SDRs (special drawing rights of the International Monetary Fund – IMF)
    • Foreign currency assets (capital inflows to the capital markets, Foreign Direct Investment and external commercial borrowings)
    • Reserve Position with IMF
  • Forex Reserves Storage: The RBI Act, 1934 provides the legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, and issuers.

 


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