BANKING AFFAIRS

Detailed explanation-1: -The RBI Act stipulates the investment categories in which the Reserve Bank is permitted to deploy its reserves. The aid receipts on Government account also flow into reserves. The outflow arises mainly on account of sale of foreign currency to Authorised Dealers (i.e. for open market operations).

Detailed explanation-2: -The Reserve Bank of India, is the custodian of the country’s foreign exchange reserves and is vested with the responsibility of managing their investment. The legal provisions governing management of foreign exchange reserves are laid down in the Reserve Bank of India Act, 1934.

Detailed explanation-3: -Exchange control-The forex market is regulated by the RBI with impregnable exchange control regulations. The RBI does not permit a bank to purchase dollars from the RBI and speculate in the interbank market. Selling these dollars in the overseas cross currency market is prohibited by the central bank.

Detailed explanation-4: -The correct answer is Reserve Bank of India.

Detailed explanation-5: -The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets. Foreign-exchange reserves act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.