{"id":1979,"date":"2024-03-31T00:13:42","date_gmt":"2024-03-30T18:43:42","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1979"},"modified":"2024-04-03T07:01:04","modified_gmt":"2024-04-03T01:31:04","slug":"q-which-one-of-the-following-groups-of-items-is-included-in-indias-foreign-exchange-reserves","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-which-one-of-the-following-groups-of-items-is-included-in-indias-foreign-exchange-reserves","title":{"rendered":"Q. Which one of the following groups of items is included in India\u2019s foreign-exchange reserves?"},"content":{"rendered":"\n<ul class=\"mcq wp-block-list\">\n<li>Foreign-currency assets, Special Drawing Rights (SDRs) and\u00a0<strong>loans<\/strong>\u00a0from foreign countries<\/li>\n\n\n\n<li>Foreign-currency assets, gold holdings of the RBI and SDRs<\/li>\n\n\n\n<li>Foreign-currency assets,\u00a0<strong>loans<\/strong>\u00a0from the World Bank and SDRs<\/li>\n\n\n\n<li>Foreign-currency assets, gold holdings of the RBI and<strong>\u00a0loans<\/strong>\u00a0from the World Bank<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (b) Foreign-currency assets, gold holdings of the RBI and SDRs<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"foreign-exchange-reserves\">Foreign Exchange Reserves:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Foreign Exchange Reserves (also called F<strong>orex Reserves<\/strong>) are&nbsp;<strong>reserve assets held by a central bank in foreign currencies.<\/strong><\/li>\n\n\n\n<li>These may&nbsp;<strong>include foreign currencies, bonds, treasury bills, and other government securities.<\/strong><\/li>\n\n\n\n<li>Reserves are&nbsp;<strong>denominated and expressed in the US dollar<\/strong>, which is the international numeraire for the purpose.<\/li>\n\n\n\n<li><strong>RBI is the custodian<\/strong>&nbsp;of the Foreign exchange reserves in India.<\/li>\n\n\n\n<li><strong>India\u2019s foreign exchange reserves comprise<\/strong>\u00a0of;\n<ul class=\"wp-block-list\">\n<li><strong>Foreign currency assets (FCAs):<\/strong>These are maintained in currencies like the US dollar, euro, pound sterling, Australian dollar and Japanese yen.<\/li>\n\n\n\n<li><strong>Gold<\/strong><\/li>\n\n\n\n<li><strong>SDR<\/strong>&nbsp;(<strong>Special Drawing Rights)<\/strong>: This is the&nbsp;<strong>reserve currency with IMF.<\/strong><\/li>\n\n\n\n<li><strong>RTP<\/strong>&nbsp;<strong>(Reserve Tranche Position)<\/strong>: This is the&nbsp;<strong>reserve capital with IMF.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The&nbsp;<strong>biggest contributor&nbsp;<\/strong>to India\u2019s Forex reserves&nbsp;<strong>is foreign currency assets, followed by gold.<\/strong><\/li>\n\n\n\n<li><strong>Purpose<\/strong>:\n<ul class=\"wp-block-list\">\n<li>They are&nbsp;<strong>used to back liabilities on their own issued currency<\/strong>,&nbsp;<strong>support the exchange rate<\/strong>&nbsp;and&nbsp;<strong>set monetary policy.<\/strong><\/li>\n\n\n\n<li>To ensure that&nbsp;<strong>RBI has backup funds if their national currency rapidly devalues&nbsp;<\/strong>or becomes altogether insolvent.<\/li>\n\n\n\n<li><strong>If the value of the Rupee decreases<\/strong>&nbsp;due to an increase in the demand of the foreign currency, then&nbsp;<strong>RBI sells the dollar<\/strong>&nbsp;in the Indian money market s<strong>o that depreciation of the Indian currency can be checked.<\/strong><\/li>\n\n\n\n<li><strong>A country with a good stock of forex has a good image at the international level&nbsp;<\/strong>because the trading countries can be sure about their payments.<\/li>\n\n\n\n<li>A<strong>&nbsp;good forex reserve helps in attracting foreign trade<\/strong>&nbsp;and earns a good reputation with trading partners.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Significance of Rising Forex Reserves:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Comfortable Position for the Government:<\/strong>&nbsp;The rising forex reserves give comfort to the government and the RBI in managing India\u2019s external and internal financial issues.<\/li>\n\n\n\n<li><strong>Managing Crisis<\/strong>: It serves as a cushion in the event of a<strong>&nbsp;Balance of Payment (BoP)<\/strong>&nbsp;crisis on the economic front.<\/li>\n\n\n\n<li><strong>Rupee Appreciation:<\/strong>&nbsp;The rising reserves have also helped the rupee to strengthen against the dollar.<\/li>\n\n\n\n<li><strong>Confidence in Market:<\/strong>&nbsp;Reserves will provide a level of confidence to markets and investors that a country can meet its external obligations.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<div class=\"wp-block-group has-theme-palette-8-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p class=\"wp-block-paragraph\"><strong>Foreign Currency Assets<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>FCAs are assets that are<strong>&nbsp;valued based on a currency other than the country\u2019s own currency.<\/strong><\/li>\n\n\n\n<li>FCA is the<strong>&nbsp;largest component<\/strong>&nbsp;of the forex reserve. It is expressed in&nbsp;<strong>dollar terms.<\/strong><\/li>\n\n\n\n<li>The FCAs include the<strong>&nbsp;effect of appreciation or depreciation of non-US units like the euro, pound and yen<\/strong>&nbsp;held in the foreign exchange reserves.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Special Drawing Rights<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The SDR is an<strong>&nbsp;international reserve asset<\/strong>,<strong>&nbsp;created by the IMF in 1969<\/strong>&nbsp;to supplement its member countries\u2019 official reserves.<\/li>\n\n\n\n<li>The SDR is&nbsp;<strong>neither a currency nor a claim<\/strong>&nbsp;on the IMF. Rather, it is<strong>&nbsp;a potential claim on the freely usable currencies of IMF members<\/strong>. SDRs can be exchanged for these currencies.<\/li>\n\n\n\n<li>The value of the&nbsp;<strong>SDR is calculated<\/strong>&nbsp;from a weighted basket of major currencies,&nbsp;<strong>including the US dollar, the euro, Japanese yen, Chinese yuan, and British pound.<\/strong><\/li>\n\n\n\n<li>The interest rate on SDRs or (SDRi) is the interest&nbsp;<strong>paid to members on their SDR holdings.<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Reserve Position in the International Monetary Fund<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A reserve tranche position implies&nbsp;<strong>a portion of the required quota of currency each member country must provide<\/strong>&nbsp;to the IMF that can be utilized for its own purposes.<\/li>\n\n\n\n<li>The reserve tranche is basically<strong>&nbsp;an emergency account that IMF members can access<\/strong>&nbsp;at any time without agreeing to conditions or paying a service fee.<\/li>\n<\/ul>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Answer: (b) Foreign-currency assets, gold holdings of the RBI and SDRs Foreign Exchange Reserves: Foreign Currency Assets Special Drawing Rights Reserve Position in the International Monetary Fund<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[60],"class_list":["post-1979","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-60"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":60,"label":"2013"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1979","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1979"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1979\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1979"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1979"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1979"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1979"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}