Business Desk, Web4Study, New Delhi
Updated Sat, 01 Aug 2020 03:03 PM IST
Foreign exchange reserves
– Photo: Web4Study – Rohit Jha
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Hence the increase
For the first time in the week ended June 5, the country’s foreign exchange reserves had gone above the $ 500 billion level. At the time, it was a strong increase of $ 8.223 billion to $ 501.703 billion. The reason for the increase in the country’s foreign exchange reserves is the increase in foreign currency assets in the week ending July 24, which forms an important part of the total currency reserves.
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According to Reserve Bank data, foreign currency assets increased by $ 3.60 billion to $ 480.48 billion in the week under review. According to the Reserve Bank, gold reserves rose by $ 1.357 billion to $ 36.10 billion in the week under review. Reserve Bank data showed that the special drawing rights in the International Monetary Fund increased by $ 9 million to $ 1.464 billion in the week under review, while the country’s reserve reserves in the IMF increased by $ 25 million to $ 4.585 billion.
Foreign exchange reserves are funds or other assets held by the country’s central banks, which are used to repay liabilities when needed. Adequate foreign exchange reserves are very important for a healthy economy. It provides much needed help to the economy in the event of an economic crisis to support imports.
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This includes foreign exchange assets, gold reserves and other reserves in the IMF, of which foreign currency assets hold the largest share after gold.
Four big advantages of foreign exchange reserves
- In 1991, the country had to mortgage gold to raise money. Then India had to pledge 47 tonnes of gold with England for just $ 400 million. But at current levels, India has enough money reserves to cover imports of more than a year. That is, it can easily meet the import expenditure of more than one year, which is its biggest advantage.
- A country with a good foreign exchange reserve attracts a good share of foreign trade and earns the trust of trading partners. This may encourage global investors to invest more in the country.
- The government may decide the immediate purchase of essential military goods because sufficient foreign exchange is available for payment.
- In addition, foreign exchange reserves can play an effective role to reduce volatility in the foreign exchange market.