FOREX RESERVES

Its co-relation with FII selling in Indian stock

markets & currency depreciation

Group 7
Jay Mehta Anshuman Yadav
Govind Rathi Akhil Singh bhadoria
Sneh Ankit Aniket Seth
Manav Vashisht
Introduction

FOREX RESERVES
Forex reserves are used to settle balance of
payments deficits between countries. Forex
reserves are made up of foreign currency assets,
gold, holdings of SDRs and reserve position in
the IMF. Usually includes foreign currencies
themselves, other assets denominated in foreign
currencies. A foreign exchange reserve is a
useful precaution for countries exposed to
financial crises. It can be used for the purpose
of intervening in the exchange market to
influence or peg the exchange rate.
Supporting & maintaining
confidence in the policies for
monetary and exchange rate
management
Limits external vulnerability by
maintaining foreign currency
liquidity to absorb shocks
during times of crisis or when
access to borrowing is
curtailed.
Exchange Rate
An exchange rate is the value of a nation's currency in
terms of the currency of another nation or economic
zone. It serves as the basic link between the local and the
overseas market for various goods, services and financial
assets. Using the exchange rate, we are able to compare
prices of goods, services, and assets quoted in different
currencies.
 FOREIGN INSTITUTIONAL INVESTORS (FII)
FII stands for Foreign Institutional Investor. It is the investment made by a person in the
foreign financial market. In other words, an investor who invests in a financial market which
is located in a foreign country.
WHY?
FOREX RESERVES
1. To keep the value of their currencies at a fixed rate.
2. Countries with a floating exchange rate system use
forex reserves to keep the value of their currency lower
than the US Dollar.
3. To maintain liquidity in case of an economic crisis.
4. The central bank (RBI) supplies foreign currency to keep
markets steady.
5. To ensure that a country meets its foreign obligations
and liabilities.
 INDIA'S FOREX RESERVES HAVE BEEN
ROBUST OVER 2 DECADES
FOREX RESERVES (IN BILLION $)
Forex Reserves peaked at 642.45 Billion dollars in September 2021 it has been steadily
declining ever since then
FII'S HAVE NET SOLD SHARES WORTH INR
3,79,397 CRORES SINCE SEPTEMBER 2021
FII'S HAVE NET SOLD SHARES WORTH
INR 2,78,429.48 CRORES IN 2022
USD APPRECIATED AT 12.5% FROM SEPTEMBER
2021 TILL DATE AND OVER 11% IN LAST 2 YEARS
INR DEPRECIATED AT 12.5% FROM SEPTEMBER
2021 TILL DATE
Key Findings & Conclusion
Coefficient interval between
Forex reserves and INR
depreciation is 0.68 which
shows strong positive
correlation
However coefficient interval
between change in forex
reserves and FII selling is
only 0.32 which infers that
there is a weak correlation
between them
THANK YOU