| With the development of the international exchange and foreign trade, our country' need for foreign exchange reserve has greatly increased. Making the great effort to keep the suitable scale of foreign exchange reserve has been a very important condition of a healthy economy, because too much or too little is not good for the economy growth sustained,healthy and stable. Too much FER will lead to the waste of the resource and increase the opportunity cost. Too little FER will distort the distribution of the resource, and expose the foreign trade and financing activity at risk. There are different opinions about what is the suitable FER scale at home and abroad. Especially to the end of the September, 2004, our country' FER has arrived 514.5 billion US dollars, taking the second place in the world, less than that of Japan. Weather the number can equal to the standard of the suitable scale. According to the write, under the open economy condition, the standard should stand on the situation in which a country has gotten the inner and outer equilibrium adapting to the fluctuation of the international financing market. The target of inner equilibrium can be measured by high economic growth rate and low rate of unemployment. The target of outer equilibrium is the balance of international payment, especially the current account balance. The scale under the situation of sustained and stable economy, low inflection and basic international payment balance can be taken as a suitable one. This thesis starts with the deep research about the current situation of our country' FER, and tries to find out the main factors that lead to the rapid growth of FER. Using the method of qualitative analysis and positive research, the writer analyses the positive and negative effect of rapid growth of FER, probes into the practical study of suitable FER theories and apply the improved Agarwal Model to measure the suitable scale. The last part focuses on the countermeasures to keep the suitable FER scale.
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