India's foreign exchange reserves saw an increase of $392 million, reaching $687 billion for the week ending January 9, according to the Reserve Bank of India (RBI). This rise is primarily attributed to a significant surge in gold reserves, which increased by $1.56 billion to $112.83 billion. The increase in gold reserves is due to the sharp rise in gold prices in the international markets. The price of gold in international markets has increased by approximately 2.5 per cent in the last week, and by about 5.5 per cent in the last month.

Conversely, the value of Foreign Currency Assets (FCA), the largest component of the foreign exchange reserves, experienced a decrease of $1.12 billion, bringing the total to $550.86 billion. FCA includes major world currencies like the euro, yen, and pound, in addition to the dollar. These values are expressed in dollars. The value of Special Drawing Rights (SDRs) also decreased by $39 million to $18.73 billion, and the country's reserve position in the International Monetary Fund (IMF) declined by $13 million to $4.758 billion.

Foreign exchange reserves are a critical component of a country's economic stability, reflecting its overall economic condition. They play a significant role in stabilizing the exchange rate. For instance, the central bank can utilize its reserves to prevent the rupee from depreciating against the dollar, thereby maintaining exchange rate stability. Rising foreign exchange reserves often indicate a substantial inflow of dollars into the country, which can strengthen the economy. Furthermore, an increase in reserves facilitates international trade.

The RBI reports that the FCA values are expressed in dollar terms, which includes the effects of appreciation or depreciation of non-US units.

These reserves are vital for stabilizing the rupee's exchange rate and facilitating international trade.