Question

Suppose there are just two countries, the US and Germany. Consider the following: US Current Account balance (BCA): -$400 US Financial Account balance (BKA): +$315 The balance on the US Reserve Account is +$85, and it means that US holdings of foreign currency denominated assets decreased The balance on the US Reserve Account is +$85, and it means that US holdings of foreign currency denominated assets increased The balance on the US Reserve Account is -$85, and it means that US holdings of foreign currency denominated assets decreased The balance on the US Reserve Account is -$85, and it means that US holdings of foreign currency denominated assets increased

Answer 1

Question is so easy but it's language is so typicall that's why maximum number of students not understand this question...

First understand basics

What Are Foreign Exchange 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.

How Foreign Exchange Reserves Work

• Foreign exchange reserves can include banknotes, deposits, bonds, treasury bills and other government securities. These assets serve many purposes but are most significantly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes all together insolvent.

Example of Foreign Exchange Reserves

• The world's largest current foreign exchange reserve holder is China, a country holding more than $3 trillion of its assets in a foreign currency. Most of their reserves are held in the U.S. dollar. One of the reasons for this is that it makes international trade easier to execute since most of the trading takes place using the U.S. dollar.
• Saudi Arabia also holds considerable foreign exchange reserves, as the country relies mainly on the export of its vast oil reserves. If oil prices begin to rapidly drop, their economy could suffer. They keep large amounts of foreign funds in reserves to act as a cushion should this happen, even if it’s only a temporary fix.
• Russia’s foreign exchange reserves are held mostly in U.S. dollars, much like the rest of the world, but the country also keeps some of its reserves in gold. Since gold is a commodity with an underlying value, the risk in relying on gold in the event of a Russian economic decline is that the value of gold will not be significant enough to support the country’s needs.

• Another danger of using gold as a reserve is that the asset is only worth what someone else is willing to pay for it. During an economic crash, that would put the power of determining the value of the gold reserve, and therefore Russia’s financial fallback, into the hands of the entity willing to purchase it.
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OTHER BASICS RELATED THINGS

• SZL (Swaziland Lilangeni) Definition
• The Swaziland lilangeni (SZL) is Swaziland's national currency which the Central Bank of Swaziland circulates. more

InternationalReserves

• International reserves are any kind of reserve funds, which central banks can pass among themselves, internationally. Reserves themselves can either be gold or a specific currency, such as the dollar or euro. more

What Is a Reserve Currency?

• A reserve currency is held by central banks and other major financial institutions in large quantities for major investments, transactions and international debt obligations. more

DOP (Dominican Peso) Definition

• DOP is the foreign exchange currency abbreviation for the Dominican Peso, the national currency of the Dominican Republic more

Yen ETF Definition

• A yen ETF is an exchange-traded fund (ETF) that tracks the Japanese yen (JPY) in the FX markets.

SUMMARY

1. Foreign exchange reserves are assets denominated in a foreign currency that are held by a central bank.
2. These may include foreign currencies, bonds, treasury bills, and other government securities.
3. Most foreign exchange reserves are held in U.S. dollars, with China being the largest foreign currency reserve holder in the world.
4. Economists suggest that it’s best to hold foreign exchange reserves in a currency that is not directly connected to the country’s own currency.

IN THIS QUESTION SAME CONCEPT APPLY

1. IF RESERVE ACCOUNT IS POSITIVE THEN OUR foreign currency denominated asset IS DECREASE
2. IF RESERVE ACCOUNT IS NEGATIVE THEN OUR FOREIGN CURRENCY DENOMINATED ASSET IS INCREASE

SIMPLE

IF YOU SATISFIED WITH MY ANSWER PLEASE GIVE ME POSITIVE REVIEW..

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