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Consider the following statements.
- Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars.
- When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases.
- India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.
How many of the above statements are correct?
- a)Only one
- b)Only two
- c)All three
- d)None
Correct answer is option 'B'. Can you explain this answer?
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Consider the following statements. Foreign exchange reserves are maint...
- Statement 2 is incorrect.
- Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, among others, but are valued in terms of US dollars. When the dollar strengthens, the valuation of other currencies vis-à-vis the US currency declines, leading to notional fall in the overall reserves position.
- The RBI also keeps the forex reserves in the dollar-denominated assets like the 10-year benchmark securities of the US and UK. Since the yields of these assets rose in 2022, it impacted India’s foreign exchange reserves.
- Besides valuation loss, the forex reserves also declined as the Reserve Bank sold dollars in the spot market to smoothen the sudden fluctuations in the rupee’s movement caused by outflows from foreign investors.
- India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.
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Consider the following statements. Foreign exchange reserves are maint...
-a-vis the US dollar decreases. Conversely, when the US dollar weakens, the valuation of other currencies vis-a-vis the US dollar increases.
Foreign exchange reserves are held by central banks and monetary authorities to ensure stability in the domestic currency and to facilitate international trade and transactions. These reserves are usually held in various currencies, including major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen.
However, the valuation of these foreign exchange reserves is typically done in terms of US dollars. This means that the value of the reserves is calculated based on the exchange rate between the US dollar and other currencies.
When the US dollar strengthens, meaning that it appreciates in value compared to other currencies, the valuation of these currencies in terms of US dollars decreases. This is because it takes fewer units of these currencies to buy one US dollar.
Conversely, when the US dollar weakens, meaning that it depreciates in value compared to other currencies, the valuation of these currencies in terms of US dollars increases. This is because it takes more units of these currencies to buy one US dollar.
The valuation of foreign exchange reserves in terms of US dollars is important because the US dollar is the most widely used currency for international trade and transactions. It serves as a benchmark for the value of other currencies and is considered a reliable and stable currency.
By maintaining a multi-currency portfolio of foreign exchange reserves but valuing them in terms of US dollars, central banks can ensure stability in their domestic currency and have a reference point for the value of their reserves in the global economy.
Foreign exchange reserves are held by central banks and monetary authorities to ensure stability in the domestic currency and to facilitate international trade and transactions. These reserves are usually held in various currencies, including major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen.
However, the valuation of these foreign exchange reserves is typically done in terms of US dollars. This means that the value of the reserves is calculated based on the exchange rate between the US dollar and other currencies.
When the US dollar strengthens, meaning that it appreciates in value compared to other currencies, the valuation of these currencies in terms of US dollars decreases. This is because it takes fewer units of these currencies to buy one US dollar.
Conversely, when the US dollar weakens, meaning that it depreciates in value compared to other currencies, the valuation of these currencies in terms of US dollars increases. This is because it takes more units of these currencies to buy one US dollar.
The valuation of foreign exchange reserves in terms of US dollars is important because the US dollar is the most widely used currency for international trade and transactions. It serves as a benchmark for the value of other currencies and is considered a reliable and stable currency.
By maintaining a multi-currency portfolio of foreign exchange reserves but valuing them in terms of US dollars, central banks can ensure stability in their domestic currency and have a reference point for the value of their reserves in the global economy.
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Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer?
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Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer?.
Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements. Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, but are valued in terms of US dollars. When the US dollar strengthens, the valuation of other currencies vis-à-vis the US currency increases. India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'B'. Can you explain this answer?.
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