One of the following is NOT a component of foreign exchange reserves in India (SSC Stenographer 2016)a)Gold stock of RBIb)SDR holdings of governmentc)Foreign exchange assets of RBId)Foreign exchange assets of governmentCorrect answer is option 'C'. Can you explain this answer?

Question

One of the following is NOT a component of foreign exchange reserves in India  (SSC Stenographer 2016)a)Gold stock of RBIb)SDR holdings of governmentc)Foreign exchange assets of RBId)Foreign exchange assets of governmentCorrect answer is option 'C'. Can you explain this answer?

Answer

Understanding Foreign Exchange Reserves in India
Foreign exchange reserves are vital for a country's economic stability. They include various assets that help manage currency value and ensure financial security. In the context of India, let’s analyze the components mentioned in the question.
Components of Foreign Exchange Reserves
- Gold Stock of RBI:
The Reserve Bank of India (RBI) holds gold as part of its reserves. Gold is considered a safe-haven asset and contributes to the overall stability of the reserves.
- SDR Holdings of Government:
Special Drawing Rights (SDRs) are international reserve assets created by the IMF. India holds SDRs, which can be used to boost its foreign exchange reserves. Hence, these are included in the reserves.
- Foreign Exchange Assets of RBI:
The foreign exchange assets held by the RBI make up a significant part of India’s foreign exchange reserves. This includes foreign currency deposits and securities.
- Foreign Exchange Assets of Government:
This refers to any foreign currency holdings or assets directly held by the government. Unlike the RBI, which plays a regulatory role, the government does not directly manage foreign exchange reserves.
Why Option 'C' is Correct
In this context, option 'C' (Foreign exchange assets of the government) is NOT a component of foreign exchange reserves in India. The reserves are primarily managed and reported by the RBI, which includes its own foreign exchange assets and not those of the government.
Conclusion
Understanding the structure of foreign exchange reserves is crucial for assessing a country's economic health. In India, it is predominantly the RBI that holds and manages these reserves, emphasizing the distinction between the assets held by the RBI and those held by the government.

Answer

Foreign exchange reserves are the foreign currencies held by Reserve Bank of India (RBI). They are also called foreign currency reserves or foreign reserves. Foreign exchange reserves assets can comprise banknotes, deposits, bonds, treasury bills and other government securities of the reserve currency.

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