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Sairaj Kadam
Entrepreneur |Founde... • 3m
What Happens When Forex Reserves Decline? We should understand it, Because India is going through that. Let’s break it down step by step. Let’s Understand What Forex Reserve Is Forex reserves are a country’s savings in foreign currencies, gold, and IMF assets, held by the central bank. These reserves act as a buffer, ensuring a country can pay for imports, stabilize its currency, and handle emergencies like economic crises or sudden outflows of foreign investment. But What Do Forex Reserves Actually Do? Forex reserves: 1. Stabilize the Currency: They are used to prevent sharp fluctuations in the value of the local currency. 2. Pay for Imports: Especially crucial for importing essential goods like oil, food, or machinery. 3. Build Investor Confidence: A higher reserve indicates a stable economy, attracting foreign investors. 4. Support Economic Policies: Governments can use them to manage trade imbalances and repay international debts. What Is the Impact of Declining Forex Reserves on Us? Weaker Rupee: The central bank has less power to stabilize the rupee, leading to higher exchange rates. Higher Inflation: Imported goods become more expensive, pushing up prices of everyday items. Costlier Loans: Central banks may raise interest rates to manage inflation, increasing loan EMIs and borrowing costs. Economic Stress: A fall in reserves signals reduced economic strength, potentially reducing foreign investments. This decline impacts not just the macroeconomy but also our daily lives by increasing costs and influencing financial decisions. Feel free to add your perspective!
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