Forex reserves are assets maintained by monetary authorities to check the balance of payments, deal with the foreign exchange rate of currency and to maintain financial market stability.
What is the role of Reserve Bank of India in forex?
- In substantive terms, the Reserve Bank functions as the custodian and manager offorex reserves, and operates within the overall policy framework agreed upon with Government of India. Why Hold Forex Reserves? Technically, it is possible to consider three motivesi.e.,transaction, speculative and precautionary motives for holding reserves.
What is the Reserve Bank of India’s policy on exchange rates?
- The Reserve Bank of India’s policy on the exchange rate of the rupee has been to allow it to be determined by market forces. It intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined level or band.
What are forex reserves and how do they work?
- Furthermore, forex reserves are instruments to maintain or manage the exchange rate, while enabling orderly absorption of international money and capital flows.
Are central bank reserves a last resort stock of foreign currency?
- Central bank reserves, however, are characterised primarily as a last resort stock of foreign currency for unpredictable flows, which is consistent with precautionary motive for holding foreign assets.