Question

Who does the Reserve Bank of India reach out to if it runs out of its foreign exchange reserves?

• A. United Nations
• B. International foreign exchange market
• C. Governments of other countries
• D. Commercial banks

Answer 1

The correct option is B International foreign exchange market

If many people import goods from a particular country, they may be required to make payments in foreign currency. Hence, the demand for that foreign currency will be high. This way, the RBI can run out of its foreign exchange reserves.

The RBI reaches out to the international foreign exchange market to obtain foreign currency in such a case. The demand for a currency in the international market determines the value of a currency in relation to the other currencies. This value of the currency in the foreign market is called the exchange rate.