ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a central bank’s accounts, foreign exchange reserves are called reserve assets in the capital account of the balance of payments, and may be labeled as reserve assets under assets by functional category.

Detailed explanation-2: -India’s foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds. with nearly 7.34% of forex reserves in gold. The FCAs also include investments in US Treasury bonds, bonds of other selected governments and deposits with foreign central and commercial banks.

Detailed explanation-3: -The Reserve Bank issues licences to banks and other institutions to act as Authorised Dealers in the foreign exchange market. In keeping with the move towards liberalisation, the Reserve Bank has undertaken substantial elimination of licensing, quantitative restrictions and other regulatory and discretionary controls.

Detailed explanation-4: -The official reserve account, a subdivision of the capital account, is the foreign currency and securities held by the government, usually by its central bank, and is used to balance the payments from year to year.