Trends in foreign exchange reserve in india

TRENDS IN FOREIGN EXCHANGE RESERVE IN INDIA

BY

M SAIRAM

JITESH MARASKOLE

INTRODUCTION

• Foreign exchange reserve Strict definition is the total of a country's foreign currency deposits and bonds held by the central bank and monetary authorities.

• Foreign exchange reserves (Forex reserves) are generally defined as assets held by RBI which is denominated in other foreign currencies.

• Forex reserves include foreign currency assets, gold, special drawing rights (SDR) and reserve position in IMF.

• Foreign currency assets are investments in foreign bonds, Tbills, deposits with foreign central banks etc.

• It is maintained in major currencies like US dollar, Euro, Pound sterling, Japanese Yen etc and valued in terms of US dollar.

Gold reserves are passively managed by RBI and accounts for around 9% of total reserves.

SDR is international reserve created by IMF which is allocated as per the member country’s quota at IMF.

Reserve position in IMF is a reserve where India can draw upon to purchase other foreign currencies from the fund.

Generally, preferred level of forex reserves is that a country’s reserves should equal short-term external debt so that a country has enough reserves to resist a massive withdrawal of short term foreign capital1.

RBI publishes data on forex reserves every week (on Friday).

IMPORTANCE OF FOREX RESERVE

• Foreign exchange reserves are important indicators of ability to repay foreign debt.

• It used to determine credit ratings of nations

• can be applied to liabilities in times of crisis include stabilization funds, otherwise known as sovereign wealth funds.

OBJECTIVE OF STUDY

• To understand the conceptual framework of forex reserves and their importance in the economic growth.

• To statistically analyze the trends in the Forex Reserves of India.

RESEARCH METHADOLAGY

• SOURCES OF DATA:

Data for the study is collected from Secondary sources. The study is based on published sources of data collected from journals, magazines, websites likes i.e…www.rbi.org.in,Central Statistical Organization (CSO),Handbook of Statistics on the Indian economy were used,

• PERIOD OF STUDY:

The data for this study was collected from the time period 2002-03 to 2013-14.

STATISTICAL ANALYSIS OF TRENDS IN FOREX RESERVES IN

INDIA

Ranking of country according to their foreign exchange reserve

Peo

ple

's R

epu

blic

of

Ch

ina

Jap

an

Sau

di A

rab

ia

Sw

itze

rlan

d

Ru

ssia

Rep

ub

lic o

f C

hin

a (T

aiw

an)

Bra

zil

Rep

ub

lic o

f K

orea

Hon

g K

ong

In

dia

1 2 3 4 5 6 7 8 9 10

0

1,000,000

2,000,000

3,000,000

4,000,0004,009,553

1,276,027738,817 549,451 465,228 428,795 376,792 366,546 325,035 319,390

Foreign Exchange Reserves

THE TOTAL FOREX RESERVES IN INDIA (YOY)

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

0.002000.004000.006000.008000.00

10000.0012000.0014000.0016000.0018000.0020000.00

reserves (Rupees Billion)

reserves (Rupees Billion)

THE COMPONENTS OF TOTAL RESERVE IN INDIA

End of Financial Year

Foreign Currency Assets

Gold Reserve Trench Position

SDR Total

(Rupees Billion) (Rupees Billion)

(Rupees Billion)

(Rupees Billion) (Rupees Billion)

2013-14 16609.10 1296.20 110.20 268.30 18283.80

2012-13 14126.30 1397.40 125.10 235.40 15884.20

2011-12 13305.11 1382.50 145.11 228.60 15061.30

2010-11 12248.83 1025.72 131.58 204.01 13610.13

2009-10 11496.50 811.88 62.31 225.96 12596.65

2008-09 12300.66 487.93 50.00 0.06 12838.65

2007-08 11960.23 401.24 17.44 0.74 12379.65

2006-07 8365.97 295.73 20.44 0.08 8682.22

2005-06 6473.27 256.74 33.74 0.12 6763.87

2004-05 5931.21 196.86 62.89 0.20 6191.16

2003-04 4662.15 182.16 56.88 0.10 4901.29

2002-03 3414.76 167.85 31.90 0.19 3614.70

SOURCE: RBI

COMPONENTS OF TOTAL RESERVE IN INDIA

16609.1; 91%

1296.2; 7%

110.2; 1% 268.3; 1%

Foreign Currency Assets (Rupees Bil-lion)

Gold (Rupees Bil-lion)

Reserve Tranch Position (Rupees Billion)

SDR (Rupees Bil-lion)

COMPONENTS OF FOREX RESERVES (YOY)

2013-14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

82

84

86

88

90

92

94

96

98

100

102

SDR%reserve trench%Gold%currency%

CORRELATION BETWEEN

AMOUNT


Reserve trench position

0.611992847


Gold

0.855837294


Special drawing rights

0.761564614

Gold


0.943480594

Gold


0.886482068



0.846041414

CONCLUSION

• We can observe from the above study that India’s forex reserve has changed over the years.

• The level of forex reserves has steadily increased from 3614 rupees billion in 2002 to 18283rupees billion in 2014.

• The mix ratio of gold and SDR’s are also increasing over the years.

• Two factors responsible for significant addition to forex reserves over the years can be attributed to lower level of current account deficit and high capital inflows.

Trends in foreign exchange reserve in india

Economy & Finance

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