Q. With reference to “Reserve currency” consider the following statements::
1.It is a large amount of currency held by central banks to use for international transactions.
2.A reserve currency reduces exchange rate risk.
3.A reserve currency is a non-convertible currency.
Which of the statements given above are correct?

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: A
Notes:

Explanation –

Statement 1 and 2 are correct. Reserve currency is a large amount of currency held by central banks to use for international transactions. A reserve currency reduces exchange rate risk because the purchasing country will not need to exchange its currency for the reserve currency while making purchases.

Statement 3 is incorrect. A reserve currency’s main feature is that it must be easily convertible and have a stable value.

Source: The Times of India