Determining The Composition of Net Foreign Exchange Reserves For Resource Based Countries

The paper presents a model for selecting an optimal foreign exchange Reserves portfolio for Resource Based countries, using mean variance approach. The model described here focuses on the relationship between the composition of Reserves and impact of return and risk of the investment in each foreign currency. Results reveal that the currency composition of Reserves has been influenced by Risk and return associated with holding Reserves assets denominated in different currencies. So that, share of each currency in composition of foreign exchange Reserves have negative relationship with risk of each currency in Reserves asset.