Abstract
Motivation/Background: A country holds foreign exchange reserves for maintaining liquidity and safety. The country possess certain amount of foreign reserves to meet their day to day operations and to meet the unforeseen contingencies. The optimum level of reserves helps a country to be self-reliant and have a self-sufficiency to meet their payment obligations.
 Methods: The paper has used double log regression model to find out the relevant and significant determinants of foreign exchange reserves in India. There are several factors like exchange rate regime, quality of institutions, history of financial crisis, degree of openness, country to country differences, dominate in conceptualizing and measuring reserve adequacy for any country.
 Results: The results of the current study shows that inflow of FDI, exchange rate, exports, short term debt and time affects the value of foreign exchange reserves in India.
 Conclusion: The study concludes that there are four major macroeconomic factors that affect the value of foreign exchange reserves and it is statistically significant also. The current paper can be of great use for the policy makers of India, in a way that they should consider the relevant determinants of foreign exchange reserves while accumulating it.
Highlights
The expansion in the volume of export, import and highly volatile capital flows in the form of investments, raised the concern for managing the foreign exchange reserves
For the purpose of analysis double log regression model has been used, in order to understand the relationship between foreign exchange reserves and eleven independent variables
The current paper has focussed on the variables which are significant and reliable determinants of foreign exchange reserves in India
Summary
The expansion in the volume of export, import and highly volatile capital flows in the form of investments, raised the concern for managing the foreign exchange reserves. According to International Monetary Fund, “Foreign exchange reserves are the external assets, which are readily available to and controlled by the monetary authorities of respective countries for direct financing of external payments imbalances and for indirectly regulating the magnitudes of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes.”. Foreign exchange reserves are called reserve assets in the balance of payments and are recorded in the capital account. In terms of financial assets classifications, the reserve assets can be classified as Gold bullion, unallocated gold accounts, currency, reserve position in the IMF, special drawing rights, interbank position, other deposits, other transferable deposits, debt securities, loans, equity (listed and unlisted), investment fund shares and financial derivatives, such as forward
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