Reserves are defined as “external assets that are readily available to and controlled by monetary authorities for direct financing of external payments imbalances, for indirectly regulating the magnitudes of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes”
In a strict sense, foreign-exchange reserves should only include foreign banknotes, foreign bank deposits, foreign treasury bills, and short and long-term foreign government securities.[However, the term in popular usage commonly also adds
gold reserves, special drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves.
Reserves are held for a variety of reasons. Chief among these are maintaining liquidity and allowing time to absorb shocks in situations where access to borrowing is curtailed or very costly. In addition, reserves provide confidence in the authorities’ commitment to the timely discharge of external obligations and to supporting the value of the domestic currency.
INDIAS FOREIGN EXCHANGE RESERVE- ECONOMIC SURVEY
Even though 2013-14 witnessed a sharp depreciation of the rupee in the initial part of the year with significant reserve drawdown, steps taken by the government and the Reserve Bank of India (RBI) resulted in a rise in the stock of foreign exchange reserves which was placed at US$ 304.2 billion at end-March 2014 .
Among the major economies with current account deficit, India is the second largest foreign exchange reserve holder after Brazil . Also SEE.
India’s foreign exchange reserves at US$ 328.7 billion at end-January mainly comprised foreign currency assets amounting to US$ 303.3 billion, accounting for 92.3 per cent of the total.
With increase in reserves in the first half of 2014-15, all reserve-based traditional external-sector vulnerability indicators have improved. For instance, the ratio of short-term external debt to reserves has declined from 29.3 per cent at end- March 2014 to 27.5 per cent as at-end September 2014, the reserves cover for imports has also increased from 7.8 months at end-March 2014 to 8.1 months as at-end September 2014.
abhijeetgautam 