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Provisions Regarding Foreign Exchange Reserve Management IMF (International Monetary Fund) is an international organization whose main purpose is concerned with financial stability and monetary cooperation. This organization issues guidelines for Foreign Exchange Risk Management such as building risk management framework for the risk assessment and maintaining the proper economic environment.
Foreign Exchanges Reserves are quite important for market stability and good for economies. Foreign Exchange reserves of the Country are mainly the assets in the form of currencies which is usually used in the international transaction. Foreign Exchange Reserves of India are mainly in the form of US government bonds and institutional bonds. Under the foreign exchange reserves, the main element is Foreign Currency Assets”.
In India, foreign exchange reserves are governed by the legal provisions of Reserve Bank of India and Foreign Exchange Management Act.
Under the process of Foreign Exchange Risk management, availability of public sector foreign assets is assured which are controlled by the authorities for the purpose of achieving the objective.
With the help of Foreign Exchange Reserve Management, it provides support to the country in order to recover from the difficult situation. For the purpose of reserve management, policymakers get informed of market developments by interacting with the reserve managers and financial markets.
Financial reputation cost may arise in case of risky practices of foreign exchange reserve management. Besides this, inappropriate economic policies may also harm serious risks in order to manage reserves.
Foreign Exchange Reserve Management Ensures Following:
The responsibility of Foreign Exchange Reserve Management is allocated to the government, reserve management entity and other agency which need to be explained and disclosed publically.
Independent external auditor will conduct the audit of reserve management entity and will give an opinion on financial statements which shall be publically disclosed.
However, the policies of the foreign exchange reserve management cannot substitute macroeconomic management.