India's foreign exchange reserves recently crossed US$400 billion for the first time in its history in November 2017. Foreign exchange reserves are money or other assets held by a central bank of the relevant country or other monetary authority so that it can pay its debts if necessary, such as currency issued by the central bank, as well as various bank reserves deposited with the central bank by the government and other financial institutions. Reserves are held in one or more reserve currencies, primarily the US dollar and, to a lesser extent, the EU euro, British pound sterling and Japanese yen. Foreign exchange reserves play a crucial role in the balance of payments component and are also an essential element in analyzing the external position of an economy. India's foreign exchange reserve level includes foreign exchange assets (FCA), gold, SDR and reserve tranche position (RTP) at the IMF. Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”? Get the original essay Countries use their foreign exchange reserves to maintain the value of their currencies at an appropriate rate during times of extreme market volatility and also the main function is to maintain liquidity in the event of an economic crisis. For example, a flood or volcano could temporarily suspend the ability of local exporters to produce goods. This deprives them of foreign currency to pay for their imports. In this case, the central bank can exchange its foreign currencies for its local currency, allowing it to pay for and receive imports. The central bank provides foreign currency to maintain market stability. It also buys the local currency to support its value and prevent inflation. The Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set out the legal provisions governing foreign exchange reserves in India. The Reserve Bank of India accumulates/disperses foreign exchange reserves by purchasing/selling from authorized dealers under open market operations whenever necessary. India's foreign exchange reserves act as a cushion against rupee volatility once global interest rates start to rise. In India, the RBI publishes reserves information every Friday. India's foreign exchange reserves peaked at US$411 on January 5, 2018, according to data released by the Reserve Bank of India on January 12, 2018, of which US$387 billion (94.16%) was in the form of foreign currency assets, including 20.5 billion US dollars. (5%) in gold, US$1.5 billion (0.36%) in SDRs and US$2 billion (0.48%) in reserve tranche position (RTP) at the IMF. The proportion of gold in our reserves is relatively low, at only 5% and still in second place. After foreign currency assets in our reserves. Gold is the currency par excellence in India. In fact, only gold came to our rescue during the crisis of 1991. The increase in foreign exchange reserves in India in recent years demonstrates the underlying strength of its balance of payments with an increase in FDI, FII investments and NRI, especially from 2014. Reservations are still necessary to ensure that a country will meet its external obligations. These include international payment obligations, including sovereign and commercial debts. If we observe that imports into India in November 2017 stand at US$ 40 billion, with current level of reserves it can easily cover 10 months..