"Question - How do foreign currency reserves work ? Answer - Foreign exchange reserves are a nation's holdings of other countries' currencies that can be converted into its own currency through the foreign exchange market, as well as holdings of foreign assets in government securities, such as bonds, and gold, that can be easily turned into cash. Foreign exchange reserves are held in one or more currencies. Foreign exchange reserves are mostly held in dollars and to a lesser extent in euros.A nation can turn to its foreign exchange reserves in case of emergencies, such as meeting deadlines on overseas debt payments. ©Dr Bibhash C Jha "