Question

Purpose of Assignment As globalization continues to expand worldwide, multinational financial institutions become more important in helping nascent economies. These development banks not only provide financing for intellectual assistance to infrastructure projects, but also make available access to basic education as well. For a well-rounded knowledge of international economics, it is incumbent upon the business student to acquaint themselves of these global institutions. Assignment Steps Resources: Suggested but not required: Vreeland, James. {2003}. The IMF and Economic Development. New York, NY: Cambridge University Press. Search the Internet for vendors who sell this book or inquire about it with a local library. Select one financial institution from the following list: European Investment Bank Asian Development Bank World Bank Development Bank of Latin America International Monetary Fund Develop the following in a minimum 700-word essay: Describe its origin, organization, purpose, and tax benefits for new business. Analyze the interaction between the selected global financial institution and the exchange rate mechanism of the foreign exchange market. Consider these financial institutions as each team member will need to select international sources of financing for their Week 5 Final Business Plan Individual Assignment.

Answer 1

The financial institution selected is World Bank:

Origin of World Bank:

World Bank was founded in 1944 at the Breton woods conference. It officially began its operations in June 1946. Beginning in the mid 1960’s , it played a major role in financing investments in infrastructural projects in developing countries including dams, roads, ports, airports etc.

Organization:

The World Bank is related to UN. Bank’s more than 180 states are represented on the board of governors which meets once in every year. The governors are respective country’s finance ministers or central bank governors. The bank has 25 executive directors who have the decision making powers. The bank’s president is the board’s chairman who is an American citizen. The wealthier and more developed country’s shareholders have greater power. The bank obtains its funds from capital subscriptions of member countries, bond floatation, ne earnings from interest payments on IBRD & IFC. The bond comprises of more than 10,000 people and has offices in about 70 countries.

Purpose:

The purpose of World Bank is to provide low interest loans, interest free credit and grants. It focuses on improving education, health, and infrastructure and also uses funds to improve a country’s financial sector, agriculture, natural resources etc.

To bridge the gap between poor and rich countries and also to achieve poverty reduction.

Tax benefits for new business:

Tax incentives and tax exemption schemes have been granted in order to encourage business in distressed areas. For example, the urban development zone (UDZ) in South Africa is an incentive program launched by ministry of finance. This has established in the areas of priority to support regeneration. Johannesburg in Africa is an example using such program.

Sources of financing for World Bank:

The money for World Bank comes from a number of different sources. IBRD which provides loans to middle and poor income countries to repay loans. It gets most of its funds from world’s financial markets by selling World Bank’s bonds to investors.

By contrast IDA provides interest free loans to poorest countries funded by contributions from donor member countries who meet every three years to replenish the funds. Additionally it also comes from funds from IBRD net income and repayments of IDA reedit.

Strong shareholder for IBRD & IDA is reflected in capital backing received from members and excellent repayment record of IBRD & IDA borrowers.

World Bank and foreign exchange mechanism:

The World Bank recognizes article XIV of articles of agreement of IMF which allows countries to maintain transfer of international transactions to promote stable exchange rate for settlement of country’s BOP.

The World Bank in relation to IBRD, IDA procures consulting and advisory services where payments are made directly to consultants and foreign exchange control is not a concern.