Pros and Cons of Increased forex reserves and position of countries according to the forex reserve they are having, including India as per the latest records.

1. Jebin James
17382024 1
FOREIGN
EXCHANGE
RESERVESADVANTAGES & DISADVANTAGESTO INDIAN
ECONOMY
F O R E X M A N A G E M E N T

2. DEFINITION
Foreign exchange reserves are also
called Forex or FX reserves and are
the amount of foreign currency
deposits that a country’s central bank
holds. A nation’s central bank will
have these reserves in different
currencies.
E.g. Dollar , Euro, Pound etc.
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3. CURRENT POSITION
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94%
5%
0% 1%
US $ mn.
Foreign Currency Assets
Gold
SDRs
Reserve Position in the IMF
Total Reserves 401293.3
Foreign Currency Assets 376591.6
Gold 20763.2
SDRs 1471.6
Reserve Position in the IMF 2466.9

4. Forex
Reserves
Advantages
 Forex serves is in meeting the international finance obligations including sovereign
and commercial debts, financing of imports.
 It helps in boosting the confidence of the market in the ability of a country to meet
its external obligations.
 It acts as cushion for unforeseen external shocks. It was due the adequate forex
reserve level that India was able to bear the global meltdown of 2008.
 Increases confidence of foreign investors and thus helps in boosting foreign direct
investment (FDI).
 RBI uses the forex reserves to adjust foreign exchange rate. In case of sharp fall in
the foreign exchange value of the Rupee, RBI sells the Dollar which appreciates the
Rupee.
 The foreign currency assets are invested mainly in instruments abroad which have
the highest credit rating and which do not pose any credit risk. These include
sovereign bonds, treasury bills and short-term deposits in top-rated global banks
besides cash accounts.
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5. Forex
Reserves
Disadvantages
 Foreign exchange reserves remain high, it will increase the pressure on foreign
exchange, resulting in financial regulation and control difficulties.
 Foreign exchange deposits directly increases the supply of base money through
the money multiplier effect. The substantial increase in money supply is not only
exacerbate the pressure of rising prices, but also weakening the ability of
monetary regulators to control money supply and its effects.
 High foreign exchange reserves reduce the efficiency of the use of funds, resulting
in waste of funds.
 High foreign exchange reserves also increases the cost of foreign exchange
reserves, increasing the risk of reserves.
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6. Top 10 Countries with
Highest Foreign
Exchange Reserves
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1. China $3.11 Trillion
2. Japan $1.25 Trillion
3. Switzerland $800.3 Billion
4. KSA $488.9 Billion
5. Russia $460.3 Billion
6. Taiwan $458.5 Billion
7. Hong Kong $431.9 Billion
8. South Korea $402.4 Billion
9. India $401.2 Billion
10. Brazil $379.4 Billion

7. THANK
YOU!
Any Questions?
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F O R E X M A N A G E M E N T