As FPI exits hit forex reserves, RBI stepped up gold purchases:An analysis and Significance

As FPI exits hit forex reserves, RBI stepped up gold purchases:An analysis and Significance

As FPI exits hit forex reserves, RBI stepped up gold purchases:An analysis and Significance – Today Current Affairs

India’s gold holdings have gone up to 760.42 tones, with the Reserve Bank of India (RBI) adding another 16.58 tones of the yellow metal to the country’s foreign exchange kitty during the six months ended March 2022.
RBI’s gold acquisition happened at a time when foreign portfolio investors (FPIs) were exiting India and forex reserves declined by $44.73 billion from $642.45 billion in September 2021 to $597.72 billion on April 29, 2022, as per Reserve Bank data.

Today Current Affairs

What are Foreign Exchange Reserves?

Foreign Exchange Reserves are assets held by a central bank in foreign currencies
India’s Forex Reserve include:
Foreign Currency Assets
Gold reserves
Special Drawing Rights
Reserve Tranche Position with the International Monetary Fund

Advantages of holding high Forex Reserve : The Hindu Analysis

• Provides import cover
• Helps in meeting short-term foreign currency debt
• Acts as buffer against global fallouts
• Improves international credibility of the economy
• It is important resource which can be used for

Investment in Infrastructure
Repayment of External Debt

Disadvantages of holding high Forex Reserve : The Hindu Analysis

There is opportunity cost in holding high forex reserves as resources are kept idle.

What are Foreign Portfolio Investors? The Hindu Analysis

Foreign Portfolio Investor (FPI) = Foreign Institutional Investors (FII) + Qualified Foreign Investors (QFI)
Foreign Institutional Investors (FII) – an Institution established or incorporated outside India which proposes to
make investment in India and which is registered with the Securities and Exchange Board of India (SEBI).
Qualified Foreign Investors (QFI) – refers to any foreign individuals, groups or associations, or resident, however,
restricted to those from a country that is a member of Financial Action Task Force (FATF) and a country that is a
signatory to International Organization of Securities Commissions Multilateral Memorandum of Understanding
(IOSCO-MMOU), and is registered with SEBI.

What are the Benefits of FPIs? The Hindu Analysis

Accessibility to International Credit:
Investors may be able to reach an increased amount of credit in foreign countries, enabling the investor to utilize more leverage and generate a higher return on their equity investment.
Increases the Liquidity of Domestic Capital Markets:
As markets become more liquid, they become more profound and broader, and a more comprehensive range of investments can be financed.
As a result, investors can invest with confidence knowing that they can promptly manage their portfolios or sell their financial securities if access to their savings is required.
Promotes the Development of Equity Markets:
Increased competition for financing leads to rewarding superior performance, prospects, and corporate governance.
As the market’s liquidity and functionality evolve, equity prices will become value-relevant for investors, ultimately driving market efficiency.

Today Current Affairs

What is the Difference between FPI and FDI?


• FDI refers to investment by non-resident entity/person, resident outside India, in the capital instruments of:
-Any listed Indian company where investment
is 10% or more
– Any Unlisted Indian company with any amount of investment.

• This can be done by either buying a company or by expanding operations of an existing business.

• FDI brings foreign capital, technology & management.

• FDI are more stable in nature and are less volatile than FII/FPI


• Any investment by a Foreign Portfolio Investor or Investor Group in a listed Indian company that is less than 10% of the paid-up share capital.

• For eg. Investments in the Mutual Funds, Govt./Corporate bonds, Pension Funds and Insurance House.

• This can be done by purchasing security from share market

• A portfolio investment does not entail active
management or control of the target organization.

• FPI brings only capital, not technology and management. Hence, FII are more volatile in
nature (‘Hot Money’)


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