Foreign exchange reserves composition
Question
Which one of the following groups of items is included in India's foreign-exchange reserves? (a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries (b) Foreign-currency assets, gold holdings of the RBI and SDRs (c) Foreign-currency assets, loans from the World Bank and SDRs (d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Options
Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
Foreign-currency assets, gold holdings of the RBI and SDRs
Foreign-currency assets, loans from the World Bank and SDRs
Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Explanation
India's foreign exchange reserves consist of three main components: (1) Foreign-currency assets (primarily US dollars, euros, and other foreign currencies), (2) Gold holdings of the RBI (physical gold reserves), and (3) Special Drawing Rights (SDRs) allocated by the IMF. Options (a) and (c) incorrectly include loans, which are liabilities rather than reserves. Option (d) incorrectly substitutes SDRs with loans. Only option (b) correctly identifies the three standard components of forex reserves as recognized by the RBI and IMF accounting standards. > Mnemonic: FAG = Foreign-currency Assets, Gold, and SDRs (the three pillars of forex reserves).
Question details
Year
2013
Paper
GS Paper 1
Question
Q83
Subject
Economy
Sub-topic
International economics and reserves
Type
Factual single
Difficulty
Medium
Nature
Static
Source hint
RBI functions and foreign exchange management
See all questions on International economics and reserves
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