Quick Answer: What do you mean by custodian of foreign reserve function of central bank?

Custodian of foreign exchange reserves The Central Bank is the custodian of country’s stock of gold and international currencies. The Central Bank maintains the stability of exchange rate. All earnings in foreign exchange transactions are to be deposited with the Central Bank and are routed through it.

What is custodian of foreign reserves?

The Reserve Bank of India, is the custodian of the country’s foreign exchange reserves and is vested with the responsibility of managing their investment.

How does a central bank act as a custodian of foreign exchange reserves?

The central bank controls both the receipts and payments of foreign exchange. 2. It tries to maintain stability of the exchange rate. For this purpose, it buys or sells foreign currencies in the market to minimise fluctuations in the foreign exchange rates.

Who is the custodian of foreign exchange reserves of India?

In India, the Reserve Bank of India Act 1934 contains the enabling provisions for the Reserve Bank to act as the custodian of foreign reserves, and manage reserves with defined objectives.

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What are central bank foreign reserves?

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank.

What are the supervisory functions of RBI?

The supervisory functions include giving license to banks along with their new branches, inspection of the assets and liabilities of the banks it regulates the financial position of the economy. It also issues directives and has the power to control Non- Bank Financial Institutions.

What are the functions of central bank?

Functions of the Central Bank

  • Currency regulator or bank of issue.
  • Bank to the government.
  • Custodian of Cash reserves.
  • Custodian of International currency.
  • Lender of last resort.
  • Clearing house for transfer and settlement.
  • Controller of credit.
  • Protecting depositors interests.

What is repo rate?

There is constant flow of funds between the central bank and other banks. The rates at which these funds change hands determine the rates at which lenders give loans to others, including retail borrowers. Repo rate is the rate at which the central bank gives loans to commercial banks against government securities.

Who propounded purchasing power parity exchange rate?


The purchasing power parity theory was propounded by Professor Gustav Cassel of Sweden. According to this theory, rate of exchange between two countries depends upon the relative purchasing power of their respective currencies.

Which of the following banks institution acts as custodian of nation’s foreign exchange reserve?

The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.

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Who is the custodian of national finance?

Notes: According to the constitution of India, the finance minister is the head of the Ministry of Finance of the Government of India. He is also considered as the custodian of the nation’s finances.

What is the meaning of foreign reserve?

‘Foreign reserves’ refers to foreign currency that a government or central bank holds. … Foreign reserves may include treasury bills, bonds, bank deposits, banknotes, and other government securities. Some people include IMF funds or gold reserves.

How do central banks get foreign reserves?

The country’s exporters deposit foreign currency into their local banks. They transfer the currency to the central bank. Exporters are paid by their trading partners in U.S. dollars, euros, or other currencies. … Banks are increasing their holdings of euro-denominated assets, such as high-quality corporate bonds.

Why do central banks hold foreign currency reserves?

Central banks maintain these reserves to balance the country’s payments, help influence the foreign exchange rate, and support confidence in financial markets. They are essentially the bank’s back-up funds that can be used in case of emergency.