RAS question
India's foreign exchange reserves are held primarily in which form?
Correct answer: (C) Foreign Currency Assets (FCA).
India's foreign exchange reserves are held primarily as Foreign Currency Assets, not as gold, SDRs, cryptocurrencies, or any single reserve item.
Explanation
India's foreign exchange reserves have four recognised components: Foreign Currency Assets, gold, Special Drawing Rights, and the Reserve Position in the IMF. The RBI's National Summary Data page lists these same heads and shows Foreign Currency Assets as the largest component of total reserves. That is why the answer is Foreign Currency Assets. In exam terms, FCA is the operational core of the reserve stock: it includes investments such as US Treasury bonds, deposits with foreign central banks and commercial banks, and other foreign-currency instruments. Gold, SDRs, and the IMF reserve position matter, but they sit alongside FCA rather than replacing it.
Why the other options are wrong
- (A) Bitcoin and cryptocurrencies are not listed by the RBI as components of India's foreign exchange reserves.
- (B) SDRs are only one component of the reserves, while the RBI's reserve table separately lists the much larger Foreign Currency Assets head.
- (D) Gold is a reserve component, but the RBI's composition table shows Foreign Currency Assets as the primary component, not gold alone.
Concept
This tests the external-sector part of Indian Economy: balance of payments, foreign exchange reserves, and reserve management. It recurs in RAS because reserve composition is a standard way to check whether candidates understand headline macroeconomic terms rather than just memorising them.