Fall in the forex
- May 9, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Fall in the forex
Subject: Economy
Section: External sector
Foreign exchange reserves declined by $2.69 billion to $597.72 billion during the week ended April 29.With this fall,forex reserves have declined $44.73 billion from $642.45 billion recorded on September 3, 2021, according to the RBI data
Causes:
- Decline for foreign currency asset-The foreign currency assets also include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the reserves.
| Movements in the FCA occur mainly on account of purchase and sale foreign exchange by the RBI,income arising out of the deployment the foreign exchange reserves, external aid receipts of the Central Government and changes on account of revaluation of the assets |
- Capital outflows– due to outflows Foreign Portfolio Investment on account of Fed tight monetary policy.
- Imported inflation and currency depreciation- The demand for dollars also remained high as the Russia-Ukraine War led to a spike in oil and commodity prices apart from depreciation of other currencies.
- Appreciation of the US Dollar
- Rise in gold prices
- RBI measure to stabilise currency depreciation- by selling forex
| Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities. It needs to be noted that most foreign exchange reserves are held in US dollars. India’s Forex Reserve include:
Foreign Currency Assets FCAs are assets that are valued based on a currency other than the country’s own currency. FCA is the largest component of the forex reserve. It is expressed in dollar terms. The FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves. |