Question
Consider the following statements regarding Forex Reserves:
Select the correct answer using the code given below:
- The country’s Forex Reserves fully covers the external debt
- The country’s Forex Reserves fully covers its one-year imports of goods and services
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
The country’s forex reserves as of the end of Feb 2020 stood at $476 billion, but India’s external debt crossed 557 billion USD as of June 2019 (and it is still increasing with time).
So, at any point in time, if we want to pay off the complete external debt, it is not possible as forex reserve is only $476 billion.
(As all external debt is denominated in foreign currencies and hardly $1 billion is in rupee debt (Masala bonds), so it has to be paid only through our Forex reserve).
Since the ratio of Forex to External debt is $476/ 557 = 85%, that means our forex reserves don’t cover the external debt.
If it would have been greater than 100% then we say that our external debt is fully covered (with forex reserves).
The country’s one-year imports are around $630 billion (2018-19). So again, our forex reserves don’t fully cover imports also.
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Answer: (d)
The country’s forex reserves as of the end of Feb 2020 stood at $476 billion, but India’s external debt crossed 557 billion USD as of June 2019 (and it is still increasing with time).
So, at any point in time, if we want to pay off the complete external debt, it is not possible as forex reserve is only $476 billion.
(As all external debt is denominated in foreign currencies and hardly $1 billion is in rupee debt (Masala bonds), so it has to be paid only through our Forex reserve).
Since the ratio of Forex to External debt is $476/ 557 = 85%, that means our forex reserves don’t cover the external debt.
If it would have been greater than 100% then we say that our external debt is fully covered (with forex reserves).
The country’s one-year imports are around $630 billion (2018-19). So again, our forex reserves don’t fully cover imports also.
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