Question

Why does the Reserve Bank of India hold foreign currency reserves of India?

• A. To share the burden of running the economy with the Government of India
• B. To pay for imports from other countries
• C. To control the exchange rate of Indian rupee
• D. To pay for exports to other countries

Answer 1

Answer: (B), (C)

To control the exchange rate of Indian rupee

Foreign currency is any currency other than a country’s own currency. Foreign currency is commonly referred to as foreign exchange. In India, it is the Reserve Bank of India (RBI) that is the sole custodian of foreign exchange reserves. Through the measures taken by the RBI, foreign exchange reserves and the exchange rate of the Indian rupee is controlled.