Foreign Exchange Reserves in India (in million US $)

Foreign Gold SDRs Reserve Total

Currency Tranche in IMF
End of
Assets in million US $ Rs. in In mln. US $
crore
1 3 5 8 10 12=
11
(3+5+8+10)
2-Jul 1,14,718 4,057 2 1,301 5,51,882 1,20,077
9-Jul 1,15,405 4,057 2 1,314 5,52,768 1,20,778
16-Jul 1,15,737 4,057 2 1,310 5,59,071 1,21,106
23-Jul 1,14,215 4,057 2 1,301 5,52,580 1,19,575
30-Jul 1,12,967 4,057 2 1,293 5,49,402 1,18,319
6-Aug 1,13,918 4,123 2 1,293 5,54,083 1,19,336
13-Aug 1,13,900 4,123 1 1,298 5,52,066 1,19,322
Fixed Exchange Rate ►Macro-Economic Risk ►Large Adjustment
Cost ►The risk of having your govt. either deflating or inflating the
Economy.
Fixed Exchange Rate►Value of the nominal rate is officially
fixed►May be in consultation or Agreement with other countries ►
To maintain Central Bank Buy or Sell its own Currencies ► May
not be the Exchange rate determined by the demand and supply for
the currency ►If the exchange rate > Fundamental Value , then it is
over-valued ►The most important is how much it is closer to the
fundamental value
This exchange rate may promote economic and finacial integration and
improve economic efficiency. Fixed Exchange Rates may improve
monetary policy “discipline” ►These countries are less able to carry out
highly expansionary monetary policies ►The result may be lower
inflation in the long run.
This exchange rate may take away a country’s ability to use monetary
flexibility to deal with recessions. ► With this we cannot achieve
different policy goals and face different types of economic shocks.
Speculative Run /Attack on Over-valued Currency
Occurs when financial investigators begin to fear that an overvalued
currency may soon be devalued, reducing the value of assets
denominated in that currency relative to assets denominated in other
currencies. The panicky sales of domestic assets with a speculative run
(selling assets denominated in over-valued currency) on a currency shift
Supply Curve of that currency to right.
Under-valued Exchange Rate
Exists if the officially fixed value is less than the fundamental value
determined by the market. To maintain this the Central Bank has to
Sell its currencies . With no limit to quantity of reserves assets , a CB
could accumulate reserves only at the expense of trading partners who
have undervalue exchange rates and therefore losing reserves. Because
countries trading partners cant lose reserves indefinitely , eventually
they may put political pressure on the country to bring the
fundamental value of its exchange rates in line with official rates
Freely Floating Rates ►Exchange rates are determined by conditions
of demand and Supply of in the Foreign Exchange Market ►
Different Structure of Risk ►Allow greater stability of Income in the
face of Foreign Trade Shocks ►Less Stability in the face of Internal
Shocks
Adjustable-Peg System ►Letting occasional devaluation and
revaluation to do some adjusting ►Pose a new Threat ►Mood when
“Currency is in Trouble”
Nominal Exchange Rate ►The rate at which two currencies traded. It
is simply called the Exchange Rate. How many units of foreign
currency in exchange for one unit of domestic currency.
Real Exchange Rate ►The no. of foreign goods someone gets in
exchange for one domestic good.
► E real = ( P dom / P for ) * E nom ►Changes in the real exchange rate
overtime indicate that, on average , the goods of the country whose
real exchange rate is rising.
Purchasing Power Parity (PPP) ►Similar foreign and domestic goods
or basket of goods shall have same price in terms of same currencies
►PPP holds in the very long run ► E nom = P for / P dom

Countries produce very different basket of goods , not the same goods
as assumed for PPP ; All are not internationally traded ;
transoportation cost and legal barriers may prevent the prices of
traded goods and services from being equalized in different countries.
The balance of payments of a country is a systematic record
of all economic transaction between residents of that country
and the rest of the world during a given period of time.
To spot whether it is becoming more difficult for debtor
countries to repay foreign creditors, one needs a set of
accounts that shows the accumulation of debts, the
repayment of interest and principal, and the country’s ability
to earn foreign exchange for future repayment.

To choose the right monetary, fiscal and exchange rate

policies understanding of how International economy works
is a must. BOP accounts show what is happening to reach
our conclusion of set of policies to choose. We can Judge the
stability of fixed exchange rate system, accumulation of
currencies. It shows all the real and financial flow between a
country and Rest of the world. The stability of Fixed or
floating exchange rate system. Residence or people tend to
demand the currencies of the places they live in most of the
An economic transaction is any exchange of value typically an
act in which title to an economic good is transferred, an economic
service is recorded, or title to assets is transferred from residents
of one country to residence of another.
A credit is outflow of value for which an offsetting inflow of
value, or payment, is due to this country . A debit is an inflow
of value for which residents of this country must make a
payment
 Borrowings from abroad are indeed analogous to exporting
     

goods and services. The borrower is selling the foreign leader an

IOU, a piece of paper promising to repay at a later time, much as
the exporter is selling a good.The borrowing like the exporting is a
way of recording money inflows since what is borrowed is money
in the form of bank deposits that will soon be put to whatever
spending are motivated the borrowing. Each debit item can be
thought of as an inflow of value lending to foreigners as
properly a debit item like import of goods and services since the
nation is in effect importing paper IOUs or promises to repay in
future.
Accumulating gold reserves in official vaults is analogous to
importing a good, even though the gold purchases are typically
made possible by a net exporting of goods and services and IOU.
  Sometimes only one side of the transaction is visible
international flow, and sometimes neither side is clearly
international. Often two opposite flows of economic value to
occur, but only one of them is detected – the net amount of
such unmeasured flows can be discovered only after summing
total credits and total debits = errors + omissions.
  Gifts– one-way transfer – unilateral transfer – inflows of
value, goodwill, gratitude. Un-repatriated profits reinvested in
a foreign subsidiary - sometimes country assets and
liabilities accrue in other countries without any visible flows
across land or water. The usual practice however is to
exclude both the profits and their reinvestment abroad from
the bop account as if no international transaction has taken
place until profits are repatriated.
Current Account Balance:- Most information part to strike
within the account. Above the line go all credits and debits
relating to goods, services and gifts. Below the line to all
assets flows, both private capital and official flows.
Current Account Surplus:- With the nation earning more
credits than debits in goods, services and gifts, is a measure of
how many few claims the nation is acquiring on foreigners.
The nation is adding to its net foreign wealth. This represents net
foreign investments. (If > 0).
Current Account Deficit-Measures that the nation is
disinvesting abroad, or becoming net debtor in order to pay for
the extra net imports of goods, services and outward giving.
The Overall Balance :-Govts and central banks have become
increasingly concerned about defending their fixed exchange rates
against the onslaught of foreigners who might stampede to sell
liquid claims in their currency in exchange for reserve assets
in time of crisis. When claims exceed reserves – set the stage
for a speculative attack on the country’s currency and
So, countries take note of the net increase in their official
reserves with the net rise in wide definition of liquid foreign
claims against the country and also change in official reserves.
Official settlement surplus = net increase in official reserves +
net decrease in liquid liabilities to official foreigners. 
Official Settlement Deficit = Net decrease in official reserves + net
increase in liquid liabilities to official foreigners.
Link between CA & NI A nation that has net foreign investment (It >
0), is a nation that is investing a part of its national savings (S)
abroad instead of the domestic capital formulation (Id). S = Id + If
or If = S – Id and Y = C + Id + G + X – M or Y – E = X - M =
If = S- Id Current Account Surplus= Net Foreign Investment
= National Saving net invested at home = Difference
between actual product and expenditure
X – M = If = S – Id = Y – E or X < M => If (-ve) =>S < Id =>Y < E
The current account surplus (X – M) cannot be raised without, at
the same time managing to raise national product relative to
national spending (Y – E), and raising the difference between
Official settlement surplus = net increase in official reserves
+ net decrease in liquid liabilities to official foreigners

Official Settlement Deficit = Net decrease in official reserves

+ net increase in liquid liabilities to official foreigners. 
Table 26 : Reserve Adequacy Indicators (percent)
Criteria India China Korea Singapore Hong Kong
1 2 3 4 5 6
Trade-related Indicators*
Import cover (months) 17.3 12.8 11 9.5 6.4
Current payments 13.2 12.4@ 8.8 6.4@ 5.2
cover
Debt-related Indicators #
Reserves to external 90.8 126.7 77.2 56.9 32.9
debt
Reserves to short-term 1521.7 490.9 280.7 81.1 48.8
external debt

Reserves to total 46.9 NA 43.3 29.3 16.3

external liabilities
M oney-based Indicators*
Reserves to broad 24.2 16.3 35.2 88.3 30
money
Reserves to reserve 111 66 478.8 833 328.2
money
M acro Indicators @
Reserves to GDP 17.6* 23.5 24.1 91.5 69.3
* Data pertain to end-March 2004.
# Data pertain to end-December 2003.
@ Data pertain to end-December 2002.
 India's Overall Balance of Payments in Rs. in Cr. 31st Mar '04
2002-03PR 2001-02PR

Item Credit Debit Net Credit Debit Net

1 2 3 4 5 6 7
A.CURRENT ACCOUNT
I. MERCHANDISE 254022 316450 -62428 214351 274778 -60427
II.INVISIBLES (a+b+c) 209813 127398 82415 175862 111701 64161
a) Services 120736 88065 32671 98559 76599 21960
i) Travel 14641 16761 -2120 13880 10869 3011
ii) Transportation 12216 12336 -120 9410 11346 -1936
iii) Insurance 1777 1511 266 1279 1208 71
iv) G.n.i.e. 1486 1108 378 2235 1293 942
v) Miscellaneous 90616 56349 34267 71755 51883 19872
of which : Software
46427 3573 42854 36036 3202 32834
Services
b) Transfers 75392 1777 73615 59987 319 59668
i) Official 1977 4 1973 1851 4 1847
ii) Private 73415 1773 71642 58136 315 57821
c) Income 13685 37556 -23871 17316 34783 -17467
i) Investment Income 13229 37467 -24238 16912 34729 -17817
ii) Compensation of
456 89 367 404 54 350
Employees
- - -
Total Current Account
463835 443848 19987 390213 386479 3734
(I+II)
 India's Overall Balance of Payments in Rs. in Cr. 31st Mar '04
2002-03PR 2001-02PR
Item Credit Debit Net Credit Debit Net
1 2 3 4 5 6 7
B. CAPITAL ACCOUNT

1. Foreign Investment
1. Foreign Investment
59596 37678 21918 68915 37038 31877
(a+b)
a) Foreign Direct
23209 5797 17412 29684 7096 22588
Investment (i+ii)
i. In India 22853 278 22575 29212 20 29192
Equity 13369 278 13091 18678 20 18658
Reinvested Earnings 7250 - 7250 8710 - 8710
Other Capital 2234 - 2234 1824 - 1824
ii. Abroad 356 5519 -5163 472 7076 -6604
Equity 356 2407 -2051 472 3173 -2701
Reinvested Earnings - 2600 -2600 - 3329 -3329
Other Capital - 512 -512 - 574 -574

b) Portfolio Investment 36387 31881 4506 39231 29942 9289

In India 36387 31708 4679 39231 29614 9617

Abroad - 173 -173 - 328 -328
 India's Overall Balance of Payments in Rs. in Cr. 31st Mar '04
2002-03PR 2001-02PR
Item Credit Debit Net Credit Debit Net
1 2 3 4 5 6 7
2.Loans (a+b+c)
2.Loans (a+b+c) 66687 85087 -18400 55002 61296 -6294

a) External Assistance 13392 25137 -11745 16073 10655 5418

i) By India - 157 -157 - 412 -412

ii) To India 13392 24980 -11588 16073 10243 5830
b) Commercial
13678 25048 -11370 12896 20372 -7476
Borrowings
(MT & LT)
i) By India 45 - 45 19 - 19
ii) To India 13633 25048 -11415 12877 20372 -7495
c) Short Term
To India 39617 34902 4715 26033 30269 -4236
 2002-03PR 2001-02PR
Item Credit Debit Net Credit Debit Net
1 2 3 4 5 6 7
3. Banking Capital (a+b)

3. Banking Capital
86927 46315 40612 83489 56818 26671
(a+b)
a) Commercial Banks 84303 45123 39180 81209 55493 25716
i) Assets 33098 9697 23401 24105 13271 10834
ii) Liabilities 51205 35426 15779 57104 42222 14882
of which : Non-Resident
48817 34403 14414 54463 41336 13127
Deposits
b) Others 2624 1192 1432 2280 1325 955
 India's Overall Balance of Payments in Rs. in Cr. 31st Mar '04
2002-03PR 2001-02PR
Item Credit Debit Net Credit Debit Net
1 2 3 4 5 6 7
4. Rupee Debt Service
4. Rupee Debt Service 0 2303 -2303 - 2458 -2458
5. Other Capital

5. Other Capital 29294 12615 16679 17296 16503 793

Total Capital Account (1 to 5)

Total Capital Account
242504 183998 58506 224702 174113 50589
(1 to 5)
C. Errors & Omissions 3523 0 3523 2269 0 2269
(Total Capital Account, Current Account & Errors and Omissions)
D. Overall Balance 709862 627846 82016 617184 560592 56592
E. Monetary
- 82016 -82016 - 56592 -56592
Movements (I+ii)
i) I.M.F. - - - - - -
ii) Foreign Exchange
- 82016 -82016 - 56592 -56592
Reserves
 2002-03PR 2001-02PR
Item Credit Debit Net Credit Debit Net

A.CURRENT ACCOUNT
I. MERCHANDISE 254022 316450 -62428 214351 274778 -60427
II.INVISIBLES 209813 127398 82415 175862 111701 64161
Total Current Account (I,II) 463835 443848 19987 390213 386479 3734
B. CAPITAL ACCOUNT
1. Foreign Investment 59596 37678 21918 68915 37038 31877
2.Loans 66687 85087 -18400 55002 61296 -6294
3. Banking Capital 86927 46315 40612 83489 56818 26671
4. Rupee Debt Service 0 2303 -2303 0 2458 -2458

5. Other Capital 29294 12615 16679 17296 16503 793

Total Capital Account (1 to 5) 242504 183998 58506 224702 174113 50589
C. Errors & Omissions
C. Errors & Omissions 3523 0 3523 2269 0 2269

(Total Capital Account, Current Account, Errors and Omissions)

D. Overall Balance (A+B+C) 709862 627846 82016 617184 560592 56592
Change Foreign Exchange
- 82016 -82016 - 56592 -56592
Reserves

E. Monetary Movements - 82016 -82016 - 56592 -56592