MANAGEMENT OF FOREIGN EXCHANGE RESERVES
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
Who is the custodian of India's foreign exchange reserves?
The Reserve Bank of India (RBI) is the custodian of India's foreign exchange reserves, managing them on behalf of the Government of India.
What is the primary purpose of holding foreign exchange reserves by a central bank?
To ensure external sector stability and meet balance of payments needs.
What are the primary objectives of managing foreign exchange reserves in India?
The primary objectives are safety, liquidity, and returns — in that order — ensuring reserves are available to meet external obligations while earning reasonable returns.
What is the 'Three-Tier' investment framework used by RBI for managing foreign exchange reserves?
Safety, liquidity, and returns are the three tiers prioritized in that order.
What does India's foreign exchange reserves comprise?
India's foreign exchange reserves comprise foreign currency assets (FCAs), gold, Special Drawing Rights (SDRs), and the Reserve Tranche Position (RTP) in the IMF.
What is the minimum import cover considered adequate for foreign exchange reserves?
Three months of import cover is generally considered the minimum adequate level.
Which component forms the largest part of India's foreign exchange reserves?
Foreign Currency Assets (FCAs) form the largest component of India's foreign exchange reserves, predominantly held in major currencies like the US dollar, euro, and pound sterling.
What is the Foreign Exchange Management Act (FEMA) and when was it enacted?
FEMA is the law governing foreign exchange transactions in India, enacted in 1999.
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