Foreign exchange reserves are the foreign currencies held by a country’s central bank. They are also called foreign currency reserves or foreign reserves. There are seven reasons why banks hold reserves. The most important reason is to manage their currencies’ values.
Advantages of Forex Reserves
♦ The foremost advantage of the forex serves is in meeting the international finance obligations including sovereign and commercial debts, financing of imports.
♦ It helps in boosting the confidence of the market in the ability of a country to meet its external obligations.
♦ It acts as cushion for unforeseen external shocks. It was due the adequate forex reserve level that India was able to bear the global meltdown of 2008.
♦ Increases confidence of foreign investors and thus helps in boosting foreign direct investment (FDI).
♦ RBI uses the forex reserves to adjust foreign exchange rate. In case of sharp fall in the foreign exchange value of the Rupee, RBI sells the Dollar which appreciates the Rupee.
♦ The foreign currency assets are invested mainly in instruments abroad which have the highest credit rating and which do not pose any credit risk. These include sovereign bonds, treasury bills and short-term deposits in top-rated global banks besides cash accounts.
India Foreign Exchange Reserves 1998-2018
Foreign Exchange Reserves in India increased to 413110 USD Million in June 9 from 412230 USD Million in the previous week. Foreign Exchange Reserves in India averaged 214144.20 USD Million from 1998 until 2018, reaching an all time high of 426080 USD Million in April of 2018 and a record low of 29048 USD Million in September of 1998.
