The country's foreign exchange reserves soared by USD 4.3 billion to USD 418 billion in the week to April 26.
About:
Meaning: Foreign-exchange reserves (also called forex reserves or FX reserves) are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.
Importance of Forex:
Reserves are held for maintaining liquidity and allowing time to absorb shocks in situations where access to borrowing is curtailed or are very costly.
It provides confidence that the authorities are committed to the timely discharge of external obligations and to supporting the value of the local currency.
It is an important component of the Balance of Payment and an essential element in the analysis of an economy’s external position.
The aftermath of the global financial crisis has, however, triggered a debate on the costs of building up foreign exchange reserves as a self-insurance mechanism. It needs to be acknowledged that Forex reserves have helped insulate India from the worst.
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