14 April 2012

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India's foreign exchange reserves declined by $1.47 billion what is Foreign-exchange reserves Explained

India's foreign exchange reserves declined by $1.47 billion what is Foreign-exchange reserves Explained

India's foreign exchange reserves declined by $1.47 billion to $292.92 billion for the week ended April 6, the lowest level in more than two months




According to the Reserve Bank of India's weekly statistical supplement
Foreign currency assets, the biggest component of the forex reserves kitty, dropped by $1.42 billion to $258.65 billion during the week under review

The value of special drawing rights (SDRs) declined by $31.5 million to $4.43 billion, and India's reserves with the International Monetary Fund (IMF) fell by $20 million to $2.81 billion.

The value of gold reserves remained unchanged at $27.02 billion.

What is Foreign-exchange reserves or forex reserves or FX RESERVES?
Explained Foreign-exchange reserves or forex reserves or FX reserves

Foreign-exchange reserves (also called forex reserves or FX reserves) in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, special drawing rights (SDRs) and International Monetary Fund (IMF) reserve positions.

This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves.

These are assets of the central bank held in different reserve currencies, mostly the United States dollar

Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations

Definition

According to the International Monetary Fund, foreign exchange reserves are defined in the Balance of Payments manual (5th edition) as

“Those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes”

Purposes for Holding Official Foreign Reserves

1. To fulfill the monetary and exchange rate policies

2. To store of nation’s wealth

3. To give credibility to foreign investors

4. To back the banknotes in use

In order to achieve all the aforementioned objectives,
The Bank of Thailand manages the official reserves according to the following 3 guiding principles as follows

1. Security –preservation of reserves values

2. Liquidity- able to meet the objectives of exchange rate and monetary policies

3. Returns- to maximize the returns within the given guidelines

Sources of Official Foreign Reserves

1. Balance of payment Surplus: The Balance of Payments consists of the current account and the capital account. Under the managed floating exchange rate, surpluses will lead to increases in foreign exchange holdings when the central bank intervenes by buying the foreign currency.

2. Returns from management of official reserves: Returns from interest payments and the change in principal values of assets


Suggested Reading –

Part One - How Currency Exchange Rate is decided?
How Currency exchange rate of Indian Rupee and Dollar is decided?

http://realityviews.blogspot.com/2010/11/part-one-how-currency-exchange-rate-is.html

How Currency Exchange Rate is decided?
How Currency exchange rate of Indian Rupee and Dollar is decided?

http://realityviews.blogspot.in/2010/11/part-two-how-currency-exchange-rate-is.html

Reality views by sm –

Saturday, April 14, 2012

Tags – Foreign-exchange reserves India


5 comments:

R April 14, 2012  

Interesting news!

Destination Infinity April 14, 2012  

Instead of having foreign currency notes in the reserve, it can be deposited (as an FD) in that foreign bank so that we can earn interest out of it, no?

Destination Infinity

sm,  April 15, 2012  

@Destination Infinity

thanks.
what if that bank becomes bankrupt?
or that country becomes bankrupt.

suresh c,  September 05, 2012  

Nirmal BABA Ko Koti Koti Pranam.