Previous Year Question
Which one of the following groups of items is included in India’s foreign-exchange reserves?
Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
Foreign-currency assets, gold holdings of the RBI and SDRs
Foreign-currency assets, loans from the World Bank and SDRs
Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Correct Answer: B
Detailed Solution
India’s foreign-exchange reserves consist of external reserve assets held by the Reserve Bank of India that may be used for international payments, intervention in the foreign-exchange market and managing external economic shocks.
According to the RBI, India’s foreign-exchange reserves have four principal components:
Foreign Currency Assets—FCA
Gold
Special Drawing Rights—SDRs
Reserve Tranche Position—RTP in the IMF
All three items listed in option (b)—Foreign Currency Assets, the RBI’s gold holdings and SDRs—form part of India’s foreign-exchange reserves. Therefore, option (b) is correct. It is not an exhaustive list because it omits the Reserve Tranche Position in the IMF, but every item mentioned in it is a valid reserve component.
1. Foreign Currency Assets
FCA constitutes the principal component of India’s foreign-exchange reserves. It may include deposits, securities and other reserve assets denominated in foreign currencies.
The RBI reports their value in US dollars. Consequently, the dollar value of FCA may change not only because of actual inflows or outflows but also because currencies such as the euro, pound and yen change in value against the dollar. This is known as the valuation effect.
2. Gold holdings
Monetary gold held by the RBI for reserve purposes forms part of the foreign-exchange reserves. Its reported dollar value may change because of:
Purchases or sales of gold by the RBI.
Changes in international gold prices.
Valuation adjustments.
3. Special Drawing Rights
An SDR is an international reserve asset created by the IMF. It is not itself a currency. IMF members can exchange their SDR holdings for freely usable currencies when required.
4. Reserve Tranche Position in the IMF
It represents a member country’s reserve position in the IMF that can be accessed relatively readily when required. It is, therefore, included in foreign-exchange reserves.
Why are foreign loans not reserve components?
A loan received from a foreign country or the World Bank is an external liability, not a reserve asset.
The proceeds of a foreign loan may temporarily increase the stock of foreign-exchange reserves, but the loan itself does not become a reserve component because it must eventually be repaid with interest.
Options (a), (c) and (d) are, therefore, incorrect because they treat foreign-country or World Bank loans as components of foreign-exchange reserves.
Current position (2026)
The RBI continues to report India’s foreign-exchange reserves under the same four components:
Forex Reserves = FCA + Gold + SDRs + RTP in IMF
The RBI normally releases these data every week through its Weekly Statistical Supplement. While analysing reserve changes between two dates, valuation changes must be considered along with actual foreign-currency flows.