What are forex reserves?

Solution
Forex reserves, or foreign exchange reserves, are the holdings of a specific central bank in foreign currencies. Central banks use their foreign currency reserves in times of crisis, such as when the national currency is exposed to losing a lot of its value due to hyperinflation. Countries that peg their exchange rate usually use their foreign currency reserves to do so, as they need to maintain that artificial price.

Central banks use their foreign currency reserves for various reasons. Even when central banks do not peg their currency to another currency, they often try to keep the value of their local currencies low in comparison with international reserves currencies. They do so with the assumption that it makes their...

Fat Finger

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Forex reserves, or foreign exchange reserves, are the holdings of a specific central bank in foreign currencies. Central banks use their foreign currency reserves in times of crisis, such as when the national currency is exposed to losing a lot of its value due to hyperinflation. Countries that peg their exchange rate usually use their foreign currency reserves to do so, as they need to maintain that artificial price.

Central banks use their foreign currency reserves for various reasons. Even when central banks do not peg their currency to another currency, they often try to keep the value of their local currencies low in comparison with international reserves currencies. They do so with the assumption that it makes their products cheaper for other countries to buy, which would make them more competitive and increase exports.

Having currency reserves also helps the country, as in times of low exports companies may be short on foreign currencies, and thus the central bank can provide it to fund needed imports.

In essence, the foreign reserves of a central bank help mostly in times of dire economic conditions. In case of political instability or in times of natural disasters or any other conditions, it is common for foreign capital to leave the country. Thus, the foreign reserves the central bank holds play a key role in maintaining currency stability. Central banks often hold gold reserves in addition to foreign currency reserves due to its intrinsic value.

Central banks who implement a fixed exchange rate policy, (i.e. they peg the value of their currency to another currency such as the US dollar), such as those of Cuba and Eritrea usually use more of their foreign exchange resources to be able to maintain this peg. Central banks who use a floating rate system, in which they let the exchange rate be determined by supply and demand factors, often only intervene when necessary and thus use their foreign reserves less for that purpose.
 
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Akwin

Private, 1st Class
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50
Forex reserves, or foreign exchange reserves, are the holdings of a specific central bank in foreign currencies. Central banks use their foreign currency reserves in times of crisis, such as when the national currency is exposed to losing a lot of its value due to hyperinflation. Countries that peg their exchange rate usually use their foreign currency reserves to do so, as they need to maintain that artificial price.

Central banks use their foreign currency reserves for various reasons. Even when central banks do not peg their currency to another currency, they often try to keep the value of their local currencies low in comparison with international reserves currencies. They do so with the assumption that it makes their products cheaper for other countries to buy, which would make them more competitive and increase exports.

Having currency reserves also helps the country, as in times of low exports companies may be short on foreign currencies, and thus the central bank can provide it to fund needed imports.

In essence, the foreign reserves of a central bank help mostly in times of dire economic conditions. In case of political instability or in times of natural disasters or any other conditions, it is common for foreign capital to leave the country. Thus, the foreign reserves the central bank holds play a key role in maintaining currency stability. Central banks often hold gold reserves in addition to foreign currency reserves due to its intrinsic value.

Central banks who implement a fixed exchange rate policy, (i.e. they peg the value of their currency to another currency such as the US dollar), such as those of Cuba and Eritrea usually use more of their foreign exchange resources to be able to maintain this peg. Central banks who use a floating rate system, in which they let the exchange rate be determined by supply and demand factors, often only intervene when necessary and thus use their foreign reserves less for that purpose.
Are foreign exchange reserves only used to back liabilities, does they influence monetary policy?
 

Eryk Martin

Recruit
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177
Are foreign exchange reserves only used to back liabilities, does they influence monetary policy?
It influences the monetary policy. However, this practice of currency reserves has become more difficult as currencies have become more intertwined as global trading has become easier.
 

Joshevans--

Private
Messages
54
Forex reserves, or foreign exchange reserves, are the holdings of a specific central bank in foreign currencies. Central banks use their foreign currency reserves in times of crisis, such as when the national currency is exposed to losing a lot of its value due to hyperinflation. Countries that peg their exchange rate usually use their foreign currency reserves to do so, as they need to maintain that artificial price.

Central banks use their foreign currency reserves for various reasons. Even when central banks do not peg their currency to another currency, they often try to keep the value of their local currencies low in comparison with international reserves currencies. They do so with the assumption that it makes their products cheaper for other countries to buy, which would make them more competitive and increase exports.

Having currency reserves also helps the country, as in times of low exports companies may be short on foreign currencies, and thus the central bank can provide it to fund needed imports.

In essence, the foreign reserves of a central bank help mostly in times of dire economic conditions. In case of political instability or in times of natural disasters or any other conditions, it is common for foreign capital to leave the country. Thus, the foreign reserves the central bank holds play a key role in maintaining currency stability. Central banks often hold gold reserves in addition to foreign currency reserves due to its intrinsic value.

Central banks who implement a fixed exchange rate policy, (i.e. they peg the value of their currency to another currency such as the US dollar), such as those of Cuba and Eritrea usually use more of their foreign exchange resources to be able to maintain this peg. Central banks who use a floating rate system, in which they let the exchange rate be determined by supply and demand factors, often only intervene when necessary and thus use their foreign reserves less for that purpose.
Spot on answer, should have cleared everything up here!
 

FriendlyFX

Sergeant
Messages
170
Took me 2 reads to fully grasp it but thank you sir
Forex reserves, or foreign exchange reserves, are the holdings of a specific central bank in foreign currencies. Central banks use their foreign currency reserves in times of crisis, such as when the national currency is exposed to losing a lot of its value due to hyperinflation. Countries that peg their exchange rate usually use their foreign currency reserves to do so, as they need to maintain that artificial price.

Central banks use their foreign currency reserves for various reasons. Even when central banks do not peg their currency to another currency, they often try to keep the value of their local currencies low in comparison with international reserves currencies. They do so with the assumption that it makes their products cheaper for other countries to buy, which would make them more competitive and increase exports.

Having currency reserves also helps the country, as in times of low exports companies may be short on foreign currencies, and thus the central bank can provide it to fund needed imports.

In essence, the foreign reserves of a central bank help mostly in times of dire economic conditions. In case of political instability or in times of natural disasters or any other conditions, it is common for foreign capital to leave the country. Thus, the foreign reserves the central bank holds play a key role in maintaining currency stability. Central banks often hold gold reserves in addition to foreign currency reserves due to its intrinsic value.

Central banks who implement a fixed exchange rate policy, (i.e. they peg the value of their currency to another currency such as the US dollar), such as those of Cuba and Eritrea usually use more of their foreign exchange resources to be able to maintain this peg. Central banks who use a floating rate system, in which they let the exchange rate be determined by supply and demand factors, often only intervene when necessary and thus use their foreign reserves less for that purpose.
 
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