The year is considered a landmark year for the Indian economy. The country went through a severe crisis, which forced the government and regulators to change a wide array of policies. Its exports were barely enough. The country had to airlift gold and pledge it with IMF for a loan in Today, India does not face this problem. Here are four reasons why:.

Most countries including India purchase gold and foreign currency regularly. This is kept aside as reserves. It could comprise of a combination of assets which include gold, foreign exchange currency holdings, investments, trade surplus and others. These can be used in the event of a financial crisis and to weather crises in the markets.

Reserves, thus, bring about financial as well as political stability. Currencies like US dollar and Euros are used in nearly all international transactions. They have thus acquired the status of reserve currencies. A country, which holds a great forex reserve, could have a big say in world politics.

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You may have seen movies where the women in the house sell off their gold and jewellery when the family goes bankrupt. This principal of using family silver to weather a financial crisis also applies for a country, as was demonstrated in the balance of payment crisis. India used its gold reserves to avoid a default back then. Foreign exchange reserves are acquired through trade, which is selling of goods and services for currency.

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Since , RBI has steadily accumulated foreign currency assets as reserves. Though most forex reserves are held in US dollars, currencies like Euro and Pound are also part of the foreign currency asset portfolio.

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This is the more you buy the dollar, the stronger it gets. This automatically means the Rupee will be valued lower.

Similarly, the more you buy gold, the higher will be its price. A strong dollar is known to reduce the prices of gold, while rising gold prices weaken the dollar. Otherwise, the overall value of its reserves may get devalued substantially under market fluctuations. Simplus Information Services 28 October Here are four reasons why: Recently Viewed Your list is empty.

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