Previous Year Question
Who maintains the foreign exchange reserve in India?
Reserve Bank of India
State Bank of India
Ministry of Finance, Government of India
Export-Import Bank of India
Correct Answer: A
Detailed Solution
The Reserve Bank of India (RBI) is the custodian and manager of India's Foreign Exchange Reserves.
The provisions of the RBI Act, 1934 enable the Reserve Bank to hold and manage the country's foreign exchange reserves. The reserves are managed keeping important objectives such as safety, liquidity and return in view.
India's foreign exchange reserves broadly consist of four components—
1. Foreign Currency Assets (FCA)
These constitute the largest component of the reserves and are held in different foreign currencies and foreign securities.
2. Gold Reserves
The monetary gold held by the RBI also forms part of India's foreign exchange reserves.
3. Special Drawing Rights (SDRs)
These are international reserve assets created by the International Monetary Fund (IMF).
4. Reserve Tranche Position (RTP) in the IMF
India's reserve position with the IMF is also included in the foreign exchange reserves.
Foreign exchange reserves can provide external-payment capacity, help manage volatility in the foreign exchange market, maintain international confidence and provide a liquidity cushion against sudden reversals of capital flows.
The State Bank of India, Ministry of Finance and EXIM Bank are not the custodians of India's foreign exchange reserves.