Central banks hold Foreign Exchange Reserves in foreign currencies which are vital for a country’s international trade and commerce. Recently, Indian foreign exchange reserves hit a lifetime high of $612 billion. It is believed that an even larger reserve will help in increasing investor confidence in the Indian economy.
Which of the following, if true, would weaken the argument made in the given paragraph?
1. Mostly dominated by foreign currency assets, foreign exchange reserves can also include other instruments like bonds, treasury bills, gold reserves etc.
2. Saudi Arabia holds considerable foreign exchange reserves, as the country relies on large amounts of imports. The foreign funds in reserves act as a cushion against volatility in the international market.
3. India has large infrastructure financing needs to meet development aspirations and a higher foreign exchange reserve ties up the much-needed capital.