Foreign Exchange Reserve
Currency/assets held by central bank for: paying international debts, stabilizing currency, intervention capacity.
Real World
China holds the world's largest foreign exchange reserves (over $3 trillion), which allows the People's Bank of China to intervene in currency markets and keep the yuan stable against the dollar.
Exam Focus
If asked to 'assess' reserve levels, consider both the benefit of currency stability and the opportunity cost of holding low-yield assets.
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