Why in News?
India’s foreign exchange reserves rose $4.8 billion by the end of February to reach a record high of $728.5 billion. The increase in reserves February was majorly driven by gold reserves, which increased $4 billion to $131 billion.
Must know concepts for exams:
India’s foreign exchange (forex) reserves
India’s forex reserves are external assets held by the Reserve Bank of India (RBI) to manage exchange rate volatility, ensure economic stability, and cover import liabilities. Managed under the RBI Act (1934) and FEMA (1999), these reserves act as a cushion against financial shocks, boosting confidence among international investors
Components of India’s Forex Reserves:
India’s Forex reserves have four main components, with Foreign Currency Assets (FCA) being the largest.
- Foreign Currency Assets (FCA): Includes external currencies (USD, EUR, GBP, JPY) and securities (US Treasury bills) purchased by the RBI.
- Gold Reserves: Physical gold held by the RBI.
- Special Drawing Rights (SDRs): International reserve assets created by the IMF, allocated to member countries.
- Reserve Tranche Position (RTP): A portion of a member’s quota in the IMF that can be accessed without a service fee