Foreign exchange reserves

CFA Level III
#1

Can we say foreign exchange reserves is using for dealing with Liquidity?

2014Q4C using foreign reserve/ short-term debt. Seems like a liqudility fireman indicator.

Any other way to use foreign exchange reserve?

#2

Emerging economies should have enough foreign reserves to pay next year of short-term debt. If not then that’s an indication of trouble. You can say that this a liquidity measure.

#3

Thanks. Short-term debt is for internal or external?l

#4

External, only debt that needs to be paid in foreign currency.

#5

Thanks!