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To: RealMuLan who wrote (55847)	11/10/2004 6:05:45 PM
From: Raymond Duray	Read Replies (1) \| Respond to of 74559

Yiwu, Re: Does the foreign reserve has to be cash or cash equivalent (like gold)? Can it be in other forms like US T-bonds, t-bills or t-notes? Bond and notes are not considered cash equivalents. Bills are included in cash equivalents. Here's on academic take on reserves: Reserves Funds held against future contingencies., normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments. ozforex.com.au Unfortunately, my financial textbooks are in storage at this time, so I can't reference them. And after a fruitless search of online resources, I'm afraid I cannot offer anything more on this topic.

To: RealMuLan who wrote (55847)	11/11/2004 5:11:05 AM
From: Golconda	Read Replies (2) \| Respond to of 74559

Yiwu, the exchange rate comes into it as future expectations as to the direction of the US dollar will affect treasury holders willingness to buy/hold/sell treasuries thereby affecting the market price. the US$ 515 billion does include all US debt obligations long term or short term. The vast majority of reserves are held in US$ and the majority of this is held in the form of short term debt ie T-bills. The 'problem' china would have just exchanging the debt for $$ would be the movement in prices that this would cause ie the price drop sharply spiking up short term interest rates leading initially to an inverted yield curve. whether this would lead to a wholesale run on the dollar is debatable but would certainly be followed by massive intervention in the currency markets by the ECB & Japan. this probably confuses the issue even more, probably