BANKING AFFAIRS

Detailed explanation-1: -An increase in foreign exchange reserves raises both liquid and total debt, while shortening debt maturity. To the extent that foreign exchange reserve interest rates are low, increased foreign reserves will cause a permanent decline in consumption, as well as move labor from the non-tradable to the tradable sector.

Detailed explanation-2: -Besides valuation loss, the forex reserves also declined as the Reserve Bank sold dollars in the spot market to smoothen the sudden fluctuations in the rupee’s movement caused by outflows from foreign investors. “In 2022, foreign investors pulled out Rs 1.2 lakh crore from the domestic equity market.

Detailed explanation-3: -The RBI’s foreign exchange reserves fell by $8.3 billion to $566.95 billion in the week ended February 10, marking the sharpest weekly fall since April 1, 2022. The reserves are at their lowest level since January 6, 2023.

Detailed explanation-4: -M1, M2, M3, and M4 were the four monetary aggregates used by the RBI between 1977 and 1998 to calculate the money supply. The idea of reserve money was also used by the central bank. However, in 1998, the measurement criteria were changed. The designations are now M0, M1, M2, and M3.