RBI introduces 20% risk reserve for derivatives over $2 million to support rupee
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Currency management and risk mitigation: a relevant GS3 topic on monetary policy and exchange rate stability.
Why in news
The Reserve Bank of India (RBI) introduced a 20% Foreign Exchange Risk Reserve for derivatives exceeding $2 million to stabilize the rupee against geopolitical headwinds.
Background
The RBI mandated a 20% risk reserve for derivatives over $2 million and lowered transaction limits to $5 million. Additionally, the RBI opened a temporary dollar window specifically for Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp.
Facts for Prelims
- FactRBI mandated a 20% Foreign Exchange Risk Reserve for derivatives exceeding $2 million
- FactTransaction limits for derivatives were reduced to $5 million
- FactRBI banned the rebooking of cancelled contracts
- BodyIndian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp were granted access to a temporary dollar window
Prelims practice question
What is the transaction limit for derivatives as mandated by the RBI in the recent policy update?
- (a)$10 million
- (b)$100 million
- (c)$5 million
- (d)$1 million
Show answer
Answer: (c) $5 million — The RBI reduced the transaction limits for derivatives to $5 million.
For Mains
Q. Analyze the role of the Reserve Bank of India's tactical interventions in managing currency volatility and ensuring macroeconomic stability during geopolitical crises.
Dimensions to cover in your answer
- Liquidity management: Balancing immediate currency stabilization with long-term market liquidity and price discovery
- Sectoral support: Addressing the specific forex requirements of public sector oil marketing companies during supply shocks
Keywords: Currency Volatility · Monetary Policy · Foreign Exchange Risk · Liquidity Management · Macroeconomic Stability
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