IMF

Question 1

Original Goal of the IMF

Answer 1

To establish monetary cooperation between nations in order to maintain a system of “fixed-but-adjustable” exchange rates.

Question 2

IMF Organization

Answer 2

A) Board of Governors
B) Executive Board
C) Managing Director

Question 3

Mandate of IMF (main goals)

Answer 3

1) International Monetary Cooperation
2) Balanced Growth of International Trade
3) Exchange Rate Stability
4) Establishing a payments system for current transactions
5) Resources for Economic Development

Question 4

Resources of IMF

Answer 4

A) The quotas
B) Standing Agreements
C) Profits from the sales of Gold
D) Creation of Special Drawing Rights (SDR)
E) Interest Income on Loans

Question 5

What is the Creation of Special Drawing Rights (SDR)

Answer 5

Created by the IMF to supplement its members official reserves. Member countries can use SDRs in various ways, they can hold it as part of their official reserves, exchange them with other members or use them in transactions with the IMF. The value of SDR is determined based on a basket of major international currencies.

Question 6

Why did the IMF ask for the ability to create SDR?

Answer 6

In the 1960s, the international reserves was dependent on gold production and the US balance of payments, this was not enough. SDR provides additional international reserves and therefore avoid economic stagnation and deflation.

Question 7

Evolutions in the role of IMF

Answer 7

A) Currency convertibility
B) Operating the fixed-but-adjustable exchange rates; countries are now free to choose their preferred exchange rate system.
C) Support in the presence of balance-of-payments imbalances.

Question 8

IMF Conditionally

Answer 8

Set of policy measures and economic reforms that a country agrees to undertake as a part of a financial assistance program with the IMF. When a country faces economic challenges and seeks financial support from the IMF, the assistance from IMF depends on the country implementing specific policies and reforms outlined by the IMF.

Question 9

IMF Theoretical Model (Salter), for correcting economic imbalances

Answer 9

1) Adjusting Expenditure
2) Switching Expenditure

Question 10

External Balance/Current Account Equilibrium

Answer 10

Production of Tradables equals the Consumption of Tradables

Question 11

Internal Balance/Full Employment

Answer 11

Production of Nontradables equals Consumption of Nontradables

Question 12

Adjusting expenditures (reducing expenditure)

Answer 12

Lower budget deficits, higher taxes and/or slower creation of money.

Question 13

Adjusting expenditures (increasing expenditure)

Answer 13

Higher budget deficits, lower taxes and/or faster creation of money.

Question 14

Expenditure switching

Answer 14

Switching of expenditure from tradables to nontradables (and vice versa) by changing the domestic-currency relative price of tradables to nontradables by using exchange-rate devaluations/revaluations.

Question 15

Bliss point (IMF theoretical model)

Answer 15

Internal Balance and External Balance