Question

In: Finance

Explain what the World Bank and the IMF are and the goals of both. What are...

Explain what the World Bank and the IMF are and the goals of both.

What are a fixed exchange rate and a floating exchange rate?

Solutions

Expert Solution

World bank which is headquartered in Washington DC is an international financial institution aims at the development of the world economy by focussing on the economic upliftment of poorer countries. They provide loans and grants for underdeveloped countries and their government for capital and infrastructure projects. It comprises of 2 institutions, they are IBRD and IDA. Top priority goal of World bank is reduction of poverty through developments.

IMF or International Monetary Fund is an agency headquartered in Washington, is a association of 189 countries intended for the global cooperation in monetary terms by facilitating interenational trades, sustainable economic growth, increase emloyement, poverty reduction etc. It depend World Bank periodically for its resources. Countries contribute to IMF through quota system and the countries facing struggle especially in Balance of payments can request for financial assistance. Main aim is to foster growth and create economic stability.

Fixed exchange rate: In Fixed exchange rate, the currency value of one country is fixed to a constant rate in terms of other currency or other assets like Gold. eg: Hong Kong dollar is pegged to USD

Floating exchange rate: Currency value of one country is allowed to fluctuate in response to international market events. eg: Indian Rupee is floating


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