What is Currency Drain Ratio?
Currency Drain Ratio is a financial metric that measures how much of a country's foreign exchange reserves are used to service its external debt. It helps in assessing the sustainability of a country's external position and its ability to meet international obligations.
How to Use This Calculator
- Enter the value of your country's external debt in USD in the first input field.
- Enter the value of your country's foreign exchange reserves in USD in the second input field.
- Click the "Calculate" button to compute the Currency Drain Ratio.
- The result will be displayed as a ratio and percentage, along with a visual indicator.
Interpreting the Results
- A ratio below 0.2 (or 20%) is generally considered healthy, indicating that a country's reserves are sufficient to cover its external debt.
- A ratio between 0.2 and 0.5 (or 20-50%) may indicate some pressure on foreign exchange reserves but is still manageable.
- A ratio above 0.5 (or 50%) suggests significant strain on foreign exchange reserves and potential liquidity problems.
Calculation Formula
Currency Drain Ratio = External Debt / Foreign Exchange Reserves
Practical Applications
This calculator can be used by:
- Economists and financial analysts to assess a country's external financial health
- Investors to evaluate the risk associated with investing in a country
- Government policymakers to identify potential external financing needs