Solution:

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank.

Foreign exchange reserves are used to back liabilities and influence monetary policy.

Most of these reserves are held in the U.S. dollar, since it is the most traded currency in the world.

It is not uncommon for the foreign exchange reserves to be made up of the British Pound (GBP), the Euro (EUR), the Chinese yuan (CNY) or the Japanese yen (JPY) as well.