UPSC Express

Q20. Which of the following is/are part of the foreign exchange reserves of India?

1. Foreign Currency Assets (FCAs)

2. Gold

3. Special Drawing Rights (SDRs)

Select the correct answer using the code given below:

A. 1 only

B. 1 and 2 only

C. 2 and 3 only

D. 1, 2 and 3

Answer: D

Exp: Foreign exchange reserve is the foreign assets held by the central bank of the country. Key components of India’s Foreign Exchange Reserves are Foreign Currency Assets (FCAs), Gold, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs are the largest component of the Forex Reserves consisting of US dollar and other major non-US global currencies. Additionally, it also comprises investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks. Gold reserve is the gold held by the Reserve Bank of India with the intention to serve as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, or to secure a currency. The SDR was created by the International Monetary Fund (IMF) as an international reserve asset in the year 1969 to supplement its member countries’ official reserves. It is essentially an artificial currency used by the IMF and is a basket of national currencies.