Question

Define the following terms and, briefly, indicate their relevance in international finance :

f) IMF conditionality;

g) The Eurodollar (xenocurrency) market

h) External balance

i) Direct controls

Answer 1

f)

IMF Conditionality:

IMF oversees world financial stability and seeks to suggest measures and financial support. IMF extends loans to beleaguered countries for their financial stability. But such loans are extended only if these countries give assurance of change in their macro economic policies. These countries have to follow macro economic reforms, so that such crisis can not be avoided over the future.

g)

Eurodollar Market:

Dollar denominated deposits located outside US, is called Eurodollar market. Federal Reserve does not have any control over such deposits. These deposits might be kept by overseas branches of American banks.

h)

External Balance:

External balance occurs when export and import are equal. it means current account is balance in country. Export brings money and import loses money. So both must be equal else there will be capital movement.

I)

Direct control:

Such measures are taken by the government, to correct problem of balance of payments. For example, government directly restrict the import of luxury items.