Why do we need a high Forex Reserve? - Explained for children

A country that has high foreign exchange reserves (reserve: something we have stored, not for using now, but for a time when the need arises) can pay for its imports without depending on exports or other foreign income. Such a country can also protect itself from international currency fluctuations (movements). 

Most international trade happens in dollars. Even if India and Australia trade with each other, they pay each other in dollars. Now, suppose India has a very few dollars in its storage, and the price of dollar rises suddenly. India will have to buy dollars at a high price to pay for its imports. But if there is money, then India can pay from its storage while the dollar is high, and then buy when the dollar is low. 

The third advantage of having high foreign currency reserves is that it indicates a strong economy. A country with a robust gold and foreign currency reserve can also borrow more easily, because the International Monetary Fund, or another lending agency, will lend more easily to that country. Won't you lend more easily to someone who you think has the money to repay? It is exactly the same with countries too.