India’s Forex reserve surge by $1.25 Billion

• India's foreign exchange (Forex) reserves rose by $1.25 billion till the second week of April month.
• According to the Reserve Bank of India's weekly statistical supplement, the overall Forex reserves increased to $371.13 billion from $369.88 billion.
• India's Forex reserves comprise of foreign currency assets (FCAs), gold, special drawing rights (SDRs) and the RBI's position with the International Monetary Fund (IMF).
• Segment-wise, FCAs -- the largest component of the Forex reserves -- augmented by $1.23 billion to $347.48 billion during the week under review.
• Besides the US dollar, FCAs consist of nearly 20-30 percent of major (non-US) global currencies.
• The country's gold reserves were stagnant at $19.86 billion.
• However, SDRs' value gained $5 million to $1.45 billion. The country's reserve position with the IMF inched higher by $7.7 million to $2.33 billion.

About Foreign Exchange reserve:

• Foreign exchange reserves are the foreign currencies held by a country's central bank and its member banks. They are also referred to as foreign currency reserves or foreign reserves.
• The country's exporters deposit foreign currencies into their local banks who then transfer them to the central bank. Exporters are paid by their trading partners in U.S. dollars, euros, or other currencies.
• The exporters exchange them for the local currency they can use to pay their workers and local suppliers.
• The banks prefer to use the cash to purchase sovereign debt because it pays a small interest rate. The most popular are Treasury bills since most foreign trade is done in dollars thanks to its status as the world's global currency.
• Banks are increasing their holdings of euro-denominated assets, such as high-quality corporate bonds. That has continued despite the eurozone crisis. In addition, they'll hold gold, special drawing rights (SDR), and any reserve balances they've deposited with the International Monetary Fund (IMF).

By: Vishal