Question

Which one of the following groups of items is included in India's foreign-exchange reserves?
1. Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
2. Foreign-currency assets, gold holdings of the RBI and SDRs
3. Foreign-currency assets, loans from the World Bank and SDRs
4. Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

Answer 1

Correct Answer - Option 2 : Foreign-currency assets, gold holdings of the RBI and SDRs

The correct answer is Foreign-currency assets, gold holdings of the RBI and SDRs.

• India's foreign-exchange reserves include Foreign-currency assets (FCA), Gold reserves, Special Drawing Rights (SDRs) and reserve position with the IMF.

• Foreign-exchange reserves are those reserves which a country's central bank keeps, generally in the form of US dollars.
• Benefits/ Objectives:

1. It provides financial back up to a nation's currency at times of devaluation.
2. It attracts foreign investment.
3. Helps in meeting the country's foreign obligations and liabilities.
4. The supply of foreign currency by the central bank makes the market steady. 
5. Maintain the country's good image in international forums.

• India has total of US$ 590.185 Billion foreign exchange reserves till January 2021.
• India stands fifth largest country holding foreign exchange reserves.
• China has the highest foreign exchange reserve with US$ 3.1 trillion. 
• Japan is the second largest holder followed by Switzerland.