Forex reserves are assets held on reserve by a nation's Central Bank (RBI in India). They are essential for supporting foreign trade and generating global economic confidence.
Global Ranking (Top 4)
1
China
2
Japan
3
Switzerland
4
India
A) Fixed / Rigid / Pegged
- The value of a currency is fixed by the government.
- It does not reflect real economic growth.
- Changes in value are known as Revaluation and Devaluation.
B) Floating / Flexible / Managed
- The value depends on market conditions (Demand & Supply).
- It reflects the real growth of the economy.
- Changes in value are known as Appreciation and Depreciation.
Happened 3 times in India:
Effects of Devaluation
Cheap Exports: Goods become competitive abroad.
Expensive Imports: Cost of buying from abroad rises.
Low Confidence: Faith in currency decreases.
Inflation: Rise in general price level.
Current Account
Records transactions of Goods & Services with other countries.
Managed by RBI
Capital Account
Records direct money-related transactions like loans, shares, and investments.
Managed by SEBI
1. Hard Currency
Currency of politically & economically stable countries. Commands maximum faith and is universally accepted. e.g. US Dollar, Euro.
2. Soft Currency
Faces frequent appreciation and depreciation. Not universally accepted for foreign trade. e.g. Indian Rupee, Turkish Lira.
3. Hot Currency
Temporary name for Hard Currency when it exits an economy at a very fast pace. e.g. US Dollar during market panic.
4. Heated Currency
Also known as Currency under Hammering. It is the domestic currency facing intense pressure of depreciation due to the rapid exit of hard currency.
5. Dear Currency
When government releases bonds in the open market, money flows from Public to Government. This money is called Dear Currency.
6. Cheap Currency
When government purchases bonds before maturity but pays the full maturity price, money flows from Government to Public.
Which institution is responsible for holding India's Foreign Exchange (FOREX) Reserve?
According to the global rankings provided, which country holds the 4th largest Forex Reserve?
Which exchange rate system involves the government fixing the value of the currency?
In a 'Floating' exchange rate system, what terms are used to describe an increase or decrease in currency value?
How many times has the Indian Rupee undergone official devaluation?
Which of the following is a direct effect of currency devaluation?
Which account in the Balance of Payments (BOP) records economic transactions of goods and services?
The 'Capital Account' of the Balance of Payments is managed by which organization in India?
What is 'Hard Currency'?
What name is given to hard currency when it exits an economy at a very fast pace?
What is 'Dear Currency'?
When the government purchases its own bonds before maturity at the full price, the resulting flow of money is called: