How does a Central Bank act as a custodian of foreign exchange reserve

1.	How does a Central Bank act as a custodian of foreign exchange reserve ?
Answer» As the custodian of foreign exchange reserves, the central bank performs several functions: 1. All the foreign exchange transactions of a country are routed through the central bank. The central bank controls both the receipts and payments of foreign exchange. 2. It tries to maintain stability of the exchange rate. For this purpose, it buys or sells foreign currencies in the market to minimise fluctuations in the foreign exchange rates. 3. It enforces exchange control regulations prescribed by the government from time to time.

How does a Central Bank act as a custodian of foreign exchange reserve ?

Answer»

As the custodian of foreign exchange reserves, the central bank performs several functions:

1. All the foreign exchange transactions of a country are routed through the central bank. The central bank controls both the receipts and payments of foreign exchange.

2. It tries to maintain stability of the exchange rate. For this purpose, it buys or sells foreign currencies in the market to minimise fluctuations in the foreign exchange rates.

3. It enforces exchange control regulations prescribed by the government from time to time.

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