Context: Ministry of Finance has recently stated that India currently has the fourth largest foreign exchange reserves in the world.
The forex reserve stood at USD 640.4 billion as on November.
Regarded as the health meter of a country, Foreign Exchange reserves or Forex reserves are assets that include foreign currencies, gold reserves, treasury bills, etcretained by a central bank or other monetary authority.
RBI is the custodian of the Foreign exchange reserves in India.
The biggest contributor to this reserve is foreign currency assets followed by the gold, SDR, and reserve with the International Monetary Fund.
Purpose of the Foreign Exchange Reserve:
It ensures that RBI has backup funds if the national currency rapidly devalues or becomes altogether insolvent.
A good stock of forex creates a good image at the international level among trading partners and helps in attracting foreign trade.