Looking for the answer to the question below related to Financial Management ?
Reserves are held in following forms, except __________________
|A. Foreign Currency
The Correct Answer Is:
- D. Silver
The correct answer is D. Silver. Reserves held by countries’ central banks and monetary authorities are typically held in various forms, including foreign currency, gold, and Special Drawing Rights (SDRs). However, silver is not commonly held as an official reserve asset, and it is not a standard form of reserve currency. Let’s explore in detail why this answer is correct and why the other options, A, B, and C, are not:
D. Silver –
This option is correct. Silver is not commonly held as an official reserve asset by central banks or monetary authorities. While silver has been used historically as a form of currency or exchange, it is not a standard or widely recognized reserve currency like gold. Official foreign exchange reserves are typically composed of foreign currency, gold, and sometimes Special Drawing Rights (SDRs).
Now, let’s examine why the other options are not correct:
A. Foreign Currency –
This option is incorrect because foreign currency is a common and significant component of a country’s official foreign exchange reserves. Central banks hold foreign currency reserves to facilitate international trade, support exchange rate stability, and maintain liquidity. These foreign currency reserves can be used to intervene in the foreign exchange market to influence exchange rates.
B. Gold –
This option is incorrect because gold is a well-known and widely held form of official reserve asset. Central banks and monetary authorities often hold gold as a store of value and as a means to maintain confidence in their currency. Gold is recognized globally as a precious metal with intrinsic value.
C. SDR (Special Drawing Rights) –
This option is incorrect because Special Drawing Rights (SDRs) are an international reserve asset created and allocated by the International Monetary Fund (IMF). SDRs serve as a supplementary international reserve asset and are allocated to IMF member countries to support global liquidity. They are not commonly held by central banks but are included in a country’s international reserves.
Official foreign exchange reserves are an important component of a country’s monetary and financial stability. These reserves serve various purposes, including facilitating international trade, ensuring the stability of a country’s currency, and providing a buffer against external economic shocks.
Central banks and monetary authorities manage these reserves to meet their policy objectives and safeguard their economies.
While gold has a long history as a form of official reserve asset, silver is not typically included in a country’s official reserves. Gold is highly valued for its historical stability and intrinsic worth, which makes it an attractive store of value and a means of supporting a country’s currency.
Special Drawing Rights (SDRs) are a more recent addition to the list of official reserve assets, created by the International Monetary Fund to address global liquidity needs.
In summary, the correct answer is D. Silver because silver is not commonly held as an official reserve asset by central banks or monetary authorities. The other options, A, B, and C, represent forms of reserves that are more commonly recognized and used in official foreign exchange reserves. Silver, while valuable and historically significant, is not a standard form of official reserve currency.
- Statistical residue is a part of ____________________
- Difference between the value of merchandise exports and imports is____________________