Why does a nation needs FOREX reserves??

FOREX or FOREIGN EXCHANGE RESERVES can be defined as an external assets that is really available to and controlled by monetary authorities for direct financing of external payments imbalances.Nation needs this reserve for following purposes:-

In order to maintain confidence in market and provide the support to the nation;s domestic and exchange rates. So that the nation should be in a position to intervene and support the domestic currency as and when required.

It helps in protecting and minimizing the nation's exteranl vulnerability to the stocks during "crisis situations" and also are able to support the nations in times and increased cost in borrowing.
It should be able to create confidence in market regarding country's ability to meet the external payment obligations.

To back the domestic currency with extended assets.

To help the nation in meeting its foreign exchange needs and external debt obligations.

To maintain reserves for national disaster and natural calamities.

-mrinal