Question:
The solution proposed by the International Monetary Fund (IMF) which was established to help countries that have Balance of Payments and foreign exchange reserve problems was
(1) the revaluation of the country’s currency.
(2) lending the country foreign exchange reserves through re-purchase and reverse re-purchase agreements.
(3) helping to re-establish the country’s exchange rate at a higher level.
(4) purchasing the country’s assets abroad and converting them to foreign currencies.
(5) helping the country to find new markets for exports.
Correct Answer:
(2)
Answer Explanation:
The IMF assists member nations facing BOP crises by providing access to its pool of foreign exchange reserves. Technically, this lending is often structured through mechanisms where the borrowing country “purchases” foreign currency with its own currency, with an agreement to “repurchase” its domestic currency later.
Topic: Global Economy Year: 2020
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