MODULE-3 contents

1.The International Monetary System:

2.The Gold Standard, The Bretton Woods System,
3.The Collapse of the Fixed Exchange Rate System,
4. The Floating Exchange Rate Regime,
5.Fixed V/S Floating Exchange Rates,
6.IMF: Origin and Objectives,
7.Crisis Management by the IMF,
8.The Spot and Forward Market

1)The International Monetary System:

International monetary systems are sets of internationally agreed rules, conventions and
supporting institutions, that facilitate international trade, cross border investment and generally
the reallocation of capital between nation states. They provide means of payment acceptable
buyers and sellers of different nationality, including deferred payment. To operate successfully,
they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and
to provide means by which global imbalances can be corrected. The systems can grow
organically as the collective result of numerous individual agreements between international
economic factors spread over several decades. Alternatively, they can arise from a single
architectural vision as happened at Bretton Woods in 1944.

Historical overview

Throughout history, precious metals such as gold and silver have been used for trade,
termed bullion, and since early history the coins of various issuers generally kingdoms and
empires have been traded. The earliest known records of pre - coinage use of bullion for
monetary exchange are from Mesopotamia and Egypt, dating from the third millennium BC.
[1]
Early money took many forms, apart from bullion; for instance bronze Spade money which
became common in Zhou dynasty China in the late 7th century BC. At this time, forms of money
were also developed in Lydia, Asia minor, from where its use spread to nearby Greek cities and
later to the rest of the world.[1]

Sometimes formal monetary systems have been imposed by regional rulers. For example,
scholars have tentatively suggested that the ruler Servius Tullius created a primitive monetary
system in the archaic period of what was to become the Roman Republic. Tullius reigned in the
sixth century BC - several centuries before Rome is believed to have developed a formal coinage
system.[2]

As with bullion, early use of coinage is believed to have been generally the preserve of the elite.
But by about the 4th century BC they were widely used in Greek cities. Coins were generally
supported by the city state authorities, who endeavoured to ensure they retained their values
regardless of fluctuations in the availability of whatever base precious metals they were made
from.[1] From Greece the use of coins spread slowly westwards throughout Europe, and
eastwards to India. Coins were in use in India from about 400BC, initially they played a greater
role in religion than trade, but by the 2nd century had become central to commercial transactions.
Monetary systems that were developed in India were so successful they spread through parts of
Asia well into the Middle Ages.[1]

As multiple coins became common within a region, they were exchanged by moneychangers, the
predecessors of today's foreign exchange market, as famously discussed in the Biblical story
of Jesus and the money changers. In Venice and the Italian city states of the early Middle Ages,
money changers would often have to struggle to perform calculations involving six or more
currencies. This partly led to Fibonacci writing his Liber Abaci where he popularised the use
of Indo-Arabic numerals, which displaced the more difficult Roman numerals then in use by
western merchants.[3]

Historic international currencies. From top left: crystalline gold, a 5th-century BCE Persian
daric, an 8th-century English mancus, and an 18th-century Spanish real.

When a given nation or empire has achieved regional hegemony, its currency has been a basis
for international trade, and hence for a de facto monetary system. In the West Europe and the
Middle East an early such coin was the Persian daric. This was succeeded by Roman
currency of the Roman empire, such as the denarius, then the Gold Dinar of the Ottoman Empire,
and later from the 16th to 20th centuries, during the Age of Imperialism by the currency of
European colonial powers: the Spanish dollar, the Dutch Gilder, the French Franc and the British
Pound Sterling; at times one currency has been pre-eminent, at times no one dominated. With the
growth of American power, the US Dollar became the basis for the international monetary
system, formalized in the Bretton Woods agreement that established the postWorld War II
monetary order, with fixed exchange rates of currencies to the dollar, and convertibility of the
dollar into gold. Since the breakdown of the Bretton Woods system, culminating in the Nixon
shock of 1971, ending convertibility, the US dollar has remained the de facto basis of the world
monetary system, though no longer de jure, with various European currencies and the Japanese
Yen being used. Since the formation of the Euro, the Euro has gained use as a reserve
currency and a unit of transactions, though the dollar has remained the primary currency.

A dominant currency may be used directly or indirectly by other nations for example, English
kings minted gold mancus, presumably to function as dinars to exchange with Islamic Spain;
colonial powers sometimes minted coins that resembled the ones already used in a distant
territory; and more recently, a number of nations have used the US dollar as their local currency,
a custom called dollarization.

Until the 19th century, the global monetary system was loosely linked at best, with Europe, the
Americas, India and China (among others) having largely separate economies, and hence
monetary systems were regional. European colonization of the Americas, starting with the
Spanish empire, led to the integration of American and European economies and monetary
systems, and European colonization of Asia led to the dominance of European currencies,
notably the British pound sterling in the 19th century, succeeded by the US dollar in the 20th
century. Some, such as Michael Hudson, foresee the decline of a single basis for the global
monetary system, and instead the emergence of regional trade blocs, citing the emergence of the
Euro as an example of this phenomenon. See also Global financial systems, world-systems
approach and polarity in international relations. It was in the later half of the 19th century that a
monetary system with close to universal global participation emerged, based on the gold
standard.

2)The Gold Standard,

The gold standard is a monetary system where a country's currency or paper money has a value
directly linked to gold. With the gold standard, countries agreed to convert paper money into a
fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys
and sells gold at that price. A gold standard is a monetary system in which the
standard economic unit of account is based on a fixed quantity of gold. Three types can be
distinguished: specie, bullion, and exchange.

In the gold specie standard the monetary unit is associated with the value of circulating
gold coins or the monetary unit has the value of a certain circulating gold coin, but other
coins may be made of less valuable metal.

The gold bullion standard is a system in which gold coins do not circulate, but the
authorities agree to sell gold bullion on demand at a fixed price in exchange for the
circulating currency.

The gold exchange standard usually does not involve the circulation of gold coins. The
main feature of the gold exchange standard is that the government guarantees a fixed
 exchange rate to the currency of another country that uses a gold standard (specie or
bullion), regardless of what type of notes or coins are used as a means of exchange. This
creates a de facto gold standard, where the value of the means of exchange has a fixed
external value in terms of gold that is independent of the inherent value of the means of
exchange itself.

Most nations abandoned the gold standard as the basis of their monetary systems at some point in
the 20th century, although many hold substantial gold reserves.[1][2]

An estimated total of 174,100 tonnes of gold have been mined in human history, according
to GFMS as of 2012. This is roughly equivalent to 5.6 billion troy ounces or, in terms of volume,
about 9,261 cubic metres (327,000 cu ft), or a cube 21 metres (69 ft) on a side. There are varying
estimates of the total volume of gold mined. One reason for the variance is that gold has been
mined for thousands of years. Another reason is that some nations are not particularly open about
how much gold is being mined. In addition, it is difficult to account for the gold output in illegal
mining activities.[3]

World production for 2011 was at 2,700 tonnes. Since the 1950s, annual gold output growth has
approximately kept pace with world population growth of around 2x[clarification needed],[4] although far
less than world economic growth of some 8x[clarification needed],[5] or some 4x[clarification needed] since 1980.

The Bretton Woods System

The Bretton Woods system of monetary management established the rules for commercial and financial
relations among the United States, Canada, Western Europe, Australiaand Japan in the mid-20th century. The
Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary
relations among independent nation-states. The chief features of the Bretton Woods system were an obligation
for each country to adopt a monetary policy that maintained the exchange rate ( 1 percent) by tying its
currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a
need to address the lack of cooperation among other countries and to prevent competitive devaluation of the
currencies as well.
Preparing to rebuild the international economic system while World War II was still raging, 730 delegates from
all 44 Allied nations gathered at the Mount Washington Hotel inBretton Woods, New Hampshire, United
States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods
Conference. The delegates deliberated during 122 July 1944, and signed the Bretton Woods agreement on its
final day. Setting up a system of rules, institutions, and procedures to regulate the international monetary
system, these accords established the International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD), which today is part of the World Bank Group. The United States,
which controlled two thirds of the world's gold, insisted that the Bretton Woods system rest on both gold and
the US dollar. Sovietrepresentatives attended the conference but later declined to ratify the final agreements,
charging that the institutions they had created were "branches of Wall Street."[1] These organizations became
operational in 1945 after a sufficient number of countries had ratified the agreement.

On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold,
effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.[2] This action,
referred to as the Nixon shock, created the situation in which the US dollar became a reserve currency used by
many states. At the same time, many fixed currencies (such as the pound sterling, for example) also became
free-floating.

International monetary systems are sets of internationally agreed rules, conventions and supporting
institutions, that facilitate international trade, cross border investment and generally the reallocation of
capital between nation states. They provide means of payment acceptable buyers and sellers of different
nationality, including deferred payment. To operate successfully, they need to inspire confidence, to provide
sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be
corrected. The systems can grow organically as the collective result of numerous individual agreements
between international economic factors spread over several decades. Alternatively, they can arise from a single
architectural vision as happened at Bretton Woods in 1944.

3)The Collapse of the Fixed Exchange Rate System

Since the collapse of the Bretton Woods system, IMF members have been free to choose any
form of exchange arrangement they wish (except pegging their currency to gold): allowing the
currency to float freely, pegging it to another currency or a basket of currencies, adopting the
currency of another country,

The rules of Bretton Woods, set forth in the articles of agreement of the International Monetary Fund (IMF)
and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed
exchange rates. The rules further sought to encourage an open system by committing members to the
convertibility of their respective currencies into other currencies and to free trade.
What emerged was the "pegged rate" currency regime. Members were required to establish a parity of their
national currencies in terms of the reserve currency (a "peg") and to maintain exchange rates within plus or
minus 1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling
foreign money).

In theory, the reserve currency would be the bancor (a World Currency Unit that was never implemented),
suggested by John Maynard Keynes; however, the United States objected and their request was granted,
making the "reserve currency" the U.S. dollar. This meant that other countries would peg their currencies to the
U.S. dollar, andonce convertibility was restoredwould buy and sell U.S. dollars to keep market exchange
rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the
gold standard in the international financial system.[21]

Meanwhile, to bolster confidence in the dollar, the U.S. agreed separately to link the dollar to gold at the rate
of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for
gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were
defined in relation to the dollar, itself convertible into gold, and above all, "as good as gold". The U.S.
currency was now effectively the world currency, the standard to which every other currency was pegged. As
the world's key currency, most international transactions were denominated in US dollars. [citation needed]

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed
by gold. Additionally, all European nations that had been involved in World War II were highly in debt and
transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United
States[citation needed]. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the
key currency of the Bretton Woods system.

Member countries could only change their par value by more than 10% with IMF approval, which was
contingent on IMF determination that its balance of payments was in a "fundamental disequilibrium". The
formal definition of fundamental disequilibrium was never determined, leading to uncertainty of approvals and
attempts to repeatedly devalue by less than 10% instead.[22] Any country that changed without approval or after
being denied was then denied access to the IMF.
4)The Floating Exchange Rate Regime,

An exchange-rate regime is the way an authority manages its currency in relation to other currencies and
the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on
many of the same factors.

The basic types are a floating exchange rate, where the market dictates movements in the exchange rate;
a pegged float, where a central bank keeps the rate from deviating too far from a target band or value; and
a fixed exchange rate, which ties the currency to another currency, mostly reserve currencies such as the U.S.
dollar or the euro or a basket of currencies.

A floating exchange rate or fluctuating exchange or flexible exchange rate is a type of exchange-rate
regime in which a currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms.
A currency that uses a floating exchange rate is known as a floating currency. A floating currency is contrasted
with a fixed currency whose value is tied to that of another currency, material goods or to a currency basket.

In the modern world, most of the world's currencies are floating; such currencies include the most widely
traded currencies: the United States dollar, the Indian rupee, the euro, the Norwegian krone, the Japanese yen,
the British pound, and the Australian dollar. However, central banks often participate in the markets to attempt
to influence the value of floating exchange rates. The Canadian dollar most closely resembles a pure floating
currency, because the Canadian central bank has not interfered with its price since it officially stopped doing so
in 1998. The US dollar runs a close second, with very little change in its foreign reserves; in contrast, Japan
and the UK intervene to a greater extent, whereas India has seen medium range intervention by its central
bank, the Reserve Bank of India.

From 1946 to the early 1970s, the Bretton Woods system made fixed currencies the norm; however, in 1971,
the US decided no longer to uphold the dollar exchange at 1/35th of an ounce of gold, so that the currency was
no longer fixed. After the 1973Smithsonian Agreement, most of the world's currencies followed suit. However,
some countries, such as most of the Gulf States, fixed their currency to the value of another currency, which
has been more recently associated with slower rates of growth. When a currency floats, targets other than the
exchange rate itself are used to administer monetary policy

Economic rationale

There are economists who think that in most circumstances, floating exchange rates are preferable to fixed
exchange rates. As floating exchange rates automatically adjust, they enable a country to dampen the impact
of shocks and foreign business cycles, and to preempt the possibility of having a balance of payments crisis.
However, they also engender unpredictability as the result of their dynamism.

However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty.
That may not necessarily be true, considering the results of countries that attempt to keep the prices of their
currency "strong" or "high" relative to others, such as the UK or the Southeast Asia countries before the Asian
currency crisis.

The debate of making a choice between fixed and floating exchange rate regimes is set forth by the Mundell
Fleming model, which argues that an economy (or the government) cannot simultaneously maintain a fixed
exchange rate, free capital movement, and an independent monetary policy. It must choose any two for control
and leave the other to market forces.

The primary argument for a floating exchange rate is that it allows monetary policies to be useful for other
purposes. Under fixed rates, monetary policy is committed to the single goal of maintaining exchange rate at
its announced level. Yet the exchange rate is only one of the many macroeconomic variables that monetary
policy can influence. A system of floating exchange rates leaves monetary policy makers free to pursue other
goals such as stabilizing employment or prices.

In cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the
currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed
float. A central bank might, for instance, allow a currency price to float freely between an upper and lower
bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling
large lots in order to provide price support or resistance or, in the case of some national currencies, there may
be legal penalties for trading outside these bounds.

5)Fixed V/S Floating Exchange Rates,

In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, ER, FX rate or Agio)
between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as
the value of one countrys currency in relation to another currency.[1] For example, an interbank exchange rate
of 119 Japanese yen (JPY, ) to the United States dollar (US$) means that 119 will be exchanged for each
US$1 or that US$1 will be exchanged for each 119. In this case it is said that the price of a dollar in relation
to yen is 119, or equivalently that the price of a yen in relation to dollars is $1/119.

Exchange rates are determined in the foreign exchange market,[2] which is open to a wide range of different
types of buyers and sellers, and where currency trading is continuous: 24 hours a day except weekends, i.e.
trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The spot exchange rate refers to the current
exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for
delivery and payment on a specific future date.

In the retail currency exchange market, different buying and selling rates will be quoted by money dealers.
Most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy
foreign currency, and the selling rate is the rate at which they will sell that currency. The quoted rates will
incorporate an allowance for a dealer's margin (or profit) in trading, or else the margin may be recovered in the
form of a commission or in some other way. Different rates may also be quoted for cash (usually notes only), a
documentary form (such as traveler's cheques) or electronically (such as a credit card purchase). The higher
rate on documentary transactions has been justified as compensating for the additional time and cost of
clearing the document. On the other hand, cash is available for resale immediately, but brings security, storage,
and transportation costs, and the cost of tying up capital in a stock of banknotes (bills).

Fixed exchange rate

A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where
a currency's value is fixed against either the value of another single currency, to a basket of other currencies, or
to another measure of value, such asgold.

There are benefits and risks to using a fixed exchange rate. A fixed exchange rate is typically used in order to
stabilize the value of a currency by directly fixing its value in a predetermined ratio to a different, more stable
or more internationally prevalent currency (or currencies), to which the value is pegged. In doing so, the
exchange rate between the currency and its peg does not change based on market conditions, the way floating
currencies do. This makes trade and investments between the two currency areas easier and more predictable,
and is especially useful for small economies, economies which borrow primarily in foreign currency, and in
which external trade forms a large part of their GDP.

A fixed exchange-rate system can also be used as a means to control the behavior of a currency, such as by
limiting rates of inflation. However, in doing so, the pegged currency is then controlled by its reference value.
As such, when the reference value rises or falls, it then follows that the value(s) of any currencies pegged to it
will also rise and fall in relation to other currencies and commodities with which the pegged currency can be
traded. In other words, a pegged currency is dependent on its reference value to dictate how its current worth is
defined at any given time. In addition, according to the MundellFleming model, with perfect capital mobility,
a fixed exchange rate prevents a government from using domestic monetary policy in order to
achieve macroeconomic stability.

In a fixed exchange-rate system, a countrys central bank typically uses an open market mechanism and is
committed at all times to buy and/or sell its currency at a fixed price in order to maintain its pegged ratio and,
hence, the stable value of its currency in relation to the reference to which it is pegged. The central bank
provides the assets and/or the foreign currency or currencies which are needed in order to finance
any payments imbalances.[1]

In the 21st century, the currencies associated with large economies typically do not fix or peg exchange rates to
other currencies. The last large economy to use a fixed exchange rate system was the People's Republic of
China which, in July 2005, adopted a slightly more flexible exchange rate system called amanaged exchange
rate.[2] The European Exchange Rate Mechanism is also used on a temporary basis to establish a final
conversion rate against the Euro () from the local currencies of countries joining the Eurozone.

Floating exchange rate

A floating exchange rate or fluctuating exchange or flexible exchange rate is a type of exchange-rate
regime in which a currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms.
A currency that uses a floating exchange rate is known as a floating currency. A floating currency is contrasted
with a fixed currency whose value is tied to that of another currency, material goods or to a currency basket.

In the modern world, most of the world's currencies are floating; such currencies include the most widely
traded currencies: the United States dollar, the Indian rupee, the euro, the Norwegian krone, the Japanese yen,
the British pound, and the Australian dollar. However, central banks often participate in the markets to attempt
to influence the value of floating exchange rates. The Canadian dollar most closely resembles a pure floating
currency, because the Canadian central bank has not interfered with its price since it officially stopped doing so
in 1998. The US dollar runs a close second, with very little change in its foreign reserves; in contrast, Japan
and the UK intervene to a greater extent, whereas India has seen medium range intervention by its central
bank, the Reserve Bank of India.

From 1946 to the early 1970s, the Bretton Woods system made fixed currencies the norm; however, in 1971,
the US decided no longer to uphold the dollar exchange at 1/35th of an ounce of gold, so that the currency was
no longer fixed. After the 1973Smithsonian Agreement, most of the world's currencies followed suit. However,
some countries, such as most of the Gulf States, fixed their currency to the value of another currency, which
has been more recently associated with slower rates of growth. When a currency floats, targets other than the
exchange rate itself are used to administer monetary policy

6)IMF: Origin and Objectives,

The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C.,
of "189 countries working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and reduce poverty around
the world."[1] Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter
White and John Maynard Keynes,[4] it came into formal existence in 1945 with 29 member countries and the
goal of reconstructing the international payment system. It now plays a central role in the management
of balance of paymentsdifficulties and international financial crises.[5] Countries contribute funds to a pool
through a quota system from which countries experiencing balance of payments problems can borrow money.
As of 2016, the fund had SDR 477 billion (about $668 billion).[6]

Through the fund, and other activities such as the gathering of statistics and analysis, surveillance of its
members' economies and the demand for particular policies,[7] the IMF works to improve the economies of its
member countries.[8] The organization's objectives stated in the Articles of Agreement are:[9] to promote
international monetary cooperation, international trade, high employment, exchange-rate stability, sustainable
economic growth, and making resources available to member countries in financial difficulty

Origin of IMF

The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in 1944.[25] During
the Great Depression, countries sharply raised barriers to trade in an attempt to improve their failing
economies. This led to the devaluation of national currencies and a decline in world trade.[26]

The Gold Room within the Mount Washington Hotel where the Bretton Woods Conference attendees signed the
agreements creating the IMF andWorld Bank

This breakdown in international monetary co-operation created a need for oversight. The representatives of 45
governments met at theBretton Woods Conference in the Mount Washington Hotel in Bretton Woods, New
Hampshire, in the United States, to discuss a framework for postwar international economic cooperation and
how to rebuild Europe.

There were two views on the role the IMF should assume as a global economic institution. American
delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing
states could repay their debts on time.[27] Most of White's plan was incorporated into the final acts adopted at
Bretton Woods. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund
upon which member states could draw to maintain economic activity and employment through periodic crises.
This view suggested an IMF that helped governments and to act as the United States government had during
the New Deal in response to World War II.
First page of the Articles of Agreement of the International Monetary Fund, 1 March 1946. Finnish Ministry of Foreign Affairs
archives

The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of
Agreement.[28] By the end of 1946 the IMF had grown to 39 members.[29] On 1 March 1947, the IMF began its
financial operations,[30] and on 8 May France became the first country to borrow from it.[29]

Plaque Commemorating the Formation of the IMF in July 1944 at the Bretton Woods Conference

The IMF was one of the key organisations of the international economic system; its design allowed the system
to balance the rebuilding of international capitalism with the maximisation of national economic sovereignty
and human welfare, also known as embedded liberalism.[14]The IMF's influence in the global economy steadily
increased as it accumulated more members. The increase reflected in particular the attainment of political
independence by many African countries and more recently the 1991 dissolution of the Soviet Union because
most countries in the Soviet sphere of influence did not join the IMF.[26]

The Bretton Woods system prevailed until 1971, when the United States government suspended the
convertibility of the US$ (and dollar reserves held by other governments) into gold. This is known as
the Nixon Shock.[26] The changes the IMF articles of agreement reflecting these changes were ratified by the
1976 Jamaica Accords.

Since 2000[edit]

In May 2010, the IMF participated, in 3:11 proportion, in the first Greek bailout that totalled 110 billion, to
address the great accumulation of public debt, caused by continuing large public sector deficits. As part of the
bailout, the Greek government agreed to adopt austerity measures that would reduce the deficit from 11% in
2009 to "well below 3%" in 2014.[31] The bailout did not include debt restructuring measures such as a haircut,
to the chagrin of the Swiss, Brazilian, Indian, Russian, and Argentinian Directors of the IMF, with the Greek
authorities themselves (at the time, PM George Papandreou and Finance Minister Giorgos Papakonstantinou)
ruling out a haircut.[32]

A second bailout package of more than 100 billion was agreed over the course of a few months from October
2011, during which time Papandreou was forced from office. The so-called Troika, of which the IMF is part,
are joint managers of this programme, which was approved by the Executive Directors of the IMF on 15
March 2012 for SDR23.8 billion,[33] and which saw private bondholders take a haircutof upwards of 50%. In
the interval between May 2010 and February 2012 the private banks of Holland, France and Germany reduced
exposure to Greek debt from 122 billion to 66 billion.[32][34]

As of January 2012, the largest borrowers from the IMF in order were Greece, Portugal, Ireland, Romania,
and Ukraine.[35]

On 25 March 2013, a 10 billion international bailout of Cyprus was agreed by the Troika, at the cost to the
Cypriots of its agreement: to close the country's second-largest bank; to impose a one-time bank deposit
levy on Bank of Cyprus uninsured deposits.[36][37] No insured deposit of 100k or less were to be affected under
the terms of a novel bail-in scheme.[38][39]

The topic of sovereign debt restructuring was taken up by the IMF in April 2013 for the first time since 2005,
in a report entitled "Sovereign Debt Restructuring: Recent Developments and Implications for the Funds
Legal and Policy Framework".[40] The paper, which was discussed by the board on 20 May,[41] summarised the
recent experiences in Greece, St Kitts and Nevis, Belize, and Jamaica. An explanatory interview with Deputy
Director Hugh Bredenkamp was published a few days later,[42] as was a deconstruction by Matina Stevisof
the Wall Street Journal.[43]

In the October 2013 Fiscal Monitor publication, the IMF suggested that a capital levy capable of reducing
Euro-area government debt ratios to "end-2007 levels" would require a very high tax rate of about 10%. [44]
The Fiscal Affairs department of the IMF, headed at the time by Acting Director Sanjeev Gupta, produced a
January 2014 report entitled "Fiscal Policy and Income Inequality" that stated that "Some taxes levied on
wealth, especially on immovable property, are also an option for economies seeking more progressive
taxation ... Property taxes are equitable and efficient, but underutilized in many economies ... There is
considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument." [45]

At the end of March 2014, the IMF secured an $18 billion bailout fund for the provisional government of
Ukraine in the aftermath of the 2014 Ukrainian revolution.[46][47]

Member countries[edit]

IMF member states

IMF member states not accepting the obligations of Article VIII, Sections 2, 3, and 4 [48]

Not all member countries of the IMF are sovereign states, and therefore not all "member countries" of the IMF
are members of the United Nations.[49] Amidst "member countries" of the IMF that are not member states of the
UN are non-sovereign areas with special jurisdictions that are officially under the sovereignty of full UN
member states, such asAruba, Curaao, Hong Kong, and Macau, as well as Kosovo.[50][51] The corporate
members appoint ex-officio voting members, who are listed below. All members of the IMF are
also International Bank for Reconstruction and Development(IBRD) members and vice versa.[citation needed]

Former members are Cuba (which left in 1964),[52] and the Republic of China (Taiwan), which was ejected from
the UN in 1980 after losing the support of then United States President Jimmy Carter and was replaced by the
People's Republic of China.[53] However, "Taiwan Province of China" is still listed in the official IMF indices.[54]

Apart from Cuba, the other UN states that do not belong to the IMF
are Andorra, Liechtenstein, Monaco and North Korea.

The former Czechoslovakia was expelled in 1954 for "failing to provide required data" and was readmitted in
1990, after the Velvet Revolution. Poland withdrew in 1950allegedly pressured by the Soviet Unionbut
returned in 1986.[55]
Qualifications[edit]

Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar period, rules for IMF
membership were left relatively loose. Members needed to make periodic membership payments towards their
quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in
the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were
imposed on governments that applied to the IMF for funding.[14]

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates
that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only
with the IMF's agreement.[56]

Some members have a very difficult relationship with the IMF and even when they are still members they do
not allow themselves to be monitored. Argentina, for example, refuses to participate in an Article IV
Consultation with the IMF.[57]

Objectives of IMF

According to the IMF itself, it works to foster global growth and economic stability by providing policy,
advice and financing to members, by working with developing nations to help them achieve macroeconomic
stability and reduce poverty.[11] The rationale for this is that private international capital markets function
imperfectly and many countries have limited access to financial markets. Such market imperfections, together
with balance-of-payments financing, provide the justification for official financing, without which many
countries could only correct large external payment imbalances through measures with adverse economic
consequences.[12] The IMF provides alternate sources of financing.

Upon the founding of the IMF, its three primary functions were: to oversee the fixed exchange
rate arrangements between countries,[13] thus helping national governments manage their exchange rates and
allowing these governments to prioritise economic growth, [14] and to provide short-term capital to aid
the balance of payments.[13] This assistance was meant to prevent the spread of international economic crises.
The IMF was also intended to help mend the pieces of the international economy after the Great
Depression andWorld War II.[14] As well, to provide capital investments for economic growth and projects such
as infrastructure.

The IMF's role was fundamentally altered by the floating exchange rates post-1971. It shifted to examining the
economic policies of countries with IMF loan agreements to determine if a shortage of capital was due
to economic fluctuations or economic policy. The IMF also researched what types of government policy would
ensure economic recovery.[15] The new challenge is to promote and implement policy that reduces the frequency
 of crises among the emerging market countries, especially the middle-income countries that are vulnerable to
massive capital outflows.[16] Rather than maintaining a position of oversight of only exchange rates, their
function became one of surveillance of the overall macroeconomic performance of member countries. Their
role became a lot more active because the IMF now manages economic policy rather than just exchange rates.

In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality,[13] which
was established in the 1950s.[14] Low-income countries can borrow onconcessional terms, which means there is
a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility
(SCF) and the Rapid Credit Facility (RCF). Nonconcessional loans, which include interest rates, are provided
mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and
Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via the Rapid
Financing Instrument (RFI) to members facing urgent balance-of-payments needs. [17]

Main objectives include:

1. Provide loan to the members for removing unfavorable balance of payment.

2. Determine the value of currency of member countries.
3. Determine the economic policies main contents of members countries.
4. To make plan for increasing per capita income of member countries.
5. To collect money from member countries in the form of fun or reserves.
6. Latest objective in IMF is that it will support 3 trillion dollars under his budget
for decreasing the pressure of 2000 recession.

7)Crisis Management by the IMF

The IMF is mandated to oversee the international monetary and financial system and monitor the economic
and financial policies of its member countries.[18] This activity is known as surveillance and facilitates
international cooperation.[19] Since the demise of the Bretton Woods system of fixed exchange rates in the early
1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of
new obligations.[18] The responsibilities changed from those of guardian to those of overseer of members
policies.

The Fund typically analyzes the appropriateness of each member countrys economic and financial policies for
achieving orderly economic growth, and assesses the consequences of these policies for other countries and for
the global economy.[18]
IMF Data Dissemination Systems participants:

IMF member using SDDS

IMF member using GDDS

IMF member, not using any of the DDSystems

non-IMF entity using SDDS

non-IMF entity using GDDS

no interaction with the IMF

In 1995 the International Monetary Fund began work on data dissemination standards with the view of guiding
IMF member countries to disseminate their economic and financial data to the public. The International
Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they
were split into two tiers: The General Data Dissemination System (GDDS) and the Special Data Dissemination
Standard (SDDS).

The executive board approved the SDDS and GDDS in 1996 and 1997 respectively, and subsequent
amendments were published in a revised Guide to the General Data Dissemination System. The system is
aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also
part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers.

The primary objective of the GDDS is to encourage member countries to build a framework to improve data
quality and statistical capacity building in order to evaluate statistical needs, set priorities in improving the
timeliness, transparency, reliability and accessibility of financial and economic data. Some countries initially
used the GDDS, but later upgraded to SDDS.

Some entities that are not themselves IMF members also contribute statistical data to the systems:
 Palestinian Authority GDDS

Hong Kong SDDS

Macau GDDS[20]

EU institutions:

the European Central Bank for the Eurozone SDDS

Eurostat for the whole EU SDDS, thus providing data from Cyprus (not using any
DDSystem on its own) and Malta (using only GDDS on its own)

8)The Spot and Forward Market

The Spot Market

The spot market or cash market is a public financial market in which financial
instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which
delivery is due at a later date. In a spot market, settlement normally happens int+2 working days, i.e., delivery
of cash and commodity must be done after two working days of the trade date. A spot market can be through
an exchange or over-the-counter (OTC). Spot markets can operate wherever the infrastructure exists to conduct
the transaction.

Exchange

Securities (i.e. financial instruments) and commodities are traded on an exchange using, making, and possibly
changing the currentmarket price.

OTC

In the over the counter market, trades are based on contracts made directly between two parties, and not
subject to the rules of anexchange. The contract terms are agreed between the parties and may be non-standard.
The price will probably not be published.

Examples

The spot foreign exchange market imposes a two-day delivery period, originally due to the time it would take
to move cash from one bank to another. Most speculative retail forex trading is done as spot transactions on
an online trading platform.
Energy Spot

The spot energy market allows producers of surplus energy to instantly locate available buyers for this energy,
negotiate prices within milliseconds, and deliver energy to the customer just a few minutes later.[citation needed] Spot
markets can be either privately operated or controlled by industry organizations or government agencies. They
frequently attract speculators, since spot market prices are known to the public almost as soon as deals are
transacted. Examples of energy spot markets for natural gas in Europe are the Title Transfer Facility (TTF) in
the Netherlands and the National Balancing Point (NBP) in the United Kingdom.

Forward market

The forward market is the informal over-the-counter financial market by which contracts for future
delivery are entered into. Standardized forward contracts are called futures contracts and traded on a futures
exchange.

It should not be confused with the futures market, as

Future contracts are traded in exchanges whereas a forward contract is traded over the counter.

The forward market is highly customized.

Each party has to deal with counterparty risk, unlike exchange-traded futures where the contracts
are renovated.

The forward exchange market is a market for contracts that ensure the future delivery of a
foreign currency at a specified exchange rate. The price of a forward contract is known as the forward rate.

Forward rates

Forward rates are usually negotiated for delivery one month, three months, or one year after the date of the
contract's creation. They usually differ from the spot rate and from each other. If one currency is expected to
depreciate against a second, it is said the first currency is selling at a discount on the forward market. The term
selling at a premium on the forward market is used for cases in which appreciation is expected.

What determines the forward rate?

If there is no government intervention on the value of a currency, the forward market will be governed
by supply and demand. In such a case it is possible that the forward rate provides information on the future
spot rate, but ultimately uncertain. What is certain is that the forward rates reflect the expectations forward
market participants have on the changes of the spot rate during the specified interval. If the forward rate and
the spot rate are the same, forward market participants do not expect much change in the price of a currency
over the given period of time.

Forward contracts can be used to hedge or cover exposure to foreign exchange risk.