[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 28 March 2022 – Economy – INSIGHTSIAS

Solution: b)

The Bretton Woods System: The Bretton Woods Conference held in 1944 set up the International Monetary Fund (IMF) and the World Bank.

The Bretton Woods Agreement was a monetary and exchange rate management system that attempted to encourage international financial cooperation through the introduction of a system of convertible currencies at fixed exchange rates

Solution: c)

International Monetary Fund (IMF) vs. the World Bank: 

The main difference between the International Monetary Fund (IMF) and the World Bank lies in their respective purposes and functions. The IMF oversees the stability of the world’s monetary system, while the World Bank’s goal is to reduce poverty by offering assistance to middle-income and low-income countries. 

World Bank assistance is typically long-term, funded by countries—mainly the world’s richest that are members of the bank—through the issuing of bonds. The bank’s loans are not used as a type of bailout, as is the case with the IMF, but as a fund for projects that help develop an underdeveloped or emerging market nation and make it more productive economically.

The size of the World Bank’s shareholders, like that of the IMF’s shareholders, depends on the size of a country’s economy. 

Solution: d) 

The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. 

The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro, pound sterling and Chinese Renminbi. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not directly determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket. 

It can be held and used by member countries, the IMF, and certain designated official entities called “prescribed holders”—but it cannot be held, for example, by private entities or individuals. Its status as a reserve asset derives from the commitments of members to hold, accept, and honor obligations denominated in SDR. The SDR also serves as the unit of account of the IMF and some other international organizations. 

Solution: c)

International Finance Corporation (IFC) 

• It is an international financial institution that offers investment, advisory, and asset management services to encourage private sector development in developing countries. 
• It is a member of the World Bank Group and is headquartered in Washington, D.C., United States. 
• It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects that purport to reduce poverty and promote development. 
• It is a corporation whose shareholders are member governments that provide paid-in capital and which have the right to vote on its matters. 
• Since 2009, the IFC has focused on a set of development goals that its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve healthcare and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health.
• It offers an array of debt and equity financing services and helps companies face their risk exposures while refraining from participating in a management capacity.

Solution: a)

A reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes—without a service fee or economic reform conditions. 

The IMF is funded through its members and their quota contributions. The reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee. 

In theory, members can borrow over 100% of their quota. However, if the amount being sought by the member nation exceeds its reserve tranche position (RTP), then it becomes a credit tranche that must be repaid in three years with interest.