Besides professional skills, knowledge of the market is also essential. When entering the financial market traders must understand financial concepts. It will help them understand information about market movements. FXCE will give you an overview, easy to understand about the market. Follow the article today to learn more about the IMF and its role.
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What is the IMF?
IMF stands for International Monetary Fund. This is a specialized agency of the United Nations, including 190 member countries. Its headquarter is in Washington D.C - the capital of the United States.
Together with the World Bank, the IMF establish to prevent economic crises. The IMF establish to promote monetary cooperation. They also ensure the security of the global financial system.
Besides, the fund ensures financial stability and facilitates international trade. They also promote jobs and sustainable economic growth and reduce poverty around the world. After many years, the IMF has become an indispensable part of the development of world financial markets.
The first half of the 20th century can be characterized by enormous international upheaval. Two world wars devastated Europe and parts of Asia while an unprecedented economic downturn in the 1930s caused financial pain worldwide.
Yet in the 1940s, on the heels of the Great Depression and World War II, more than 40 countries met in the US to develop a new, rules-based world order that would be facilitated by a series of international institutions. Recognizing that economic instability poses a major threat to global security, the governments created the IMF and a partner organization, the World Bank.
After countries sent letters of ratification of the Bretton Woods agreement signed in 1944. The IMF officially establish in December 1945 to promote international trade. Until March 1, 1947, IMF commenced its operation and enjoyed the status of a specialized agency of the United Nations. By May 1947, the IMF made the first loan.
As for how it works, the IMF builds its financial funds through membership fees, known as quotas. Each member country pays for a quota based on its economic size, so major economies pay more. Thus, the fund's main source of operating capital is contributed by member countries. The member countries with the largest shares in the IMF currently. They are the US, Japan, Germany, the UK, and France.
The organization consists of a Board of Governors and is led by a 24-member Executive Board, which is headed by a managing director. By tradition, the managing director has always been European; many, however, are pushing to end this practice.
Today, the IMF has 190 member countries. Each government contributes to the financing of the International Monetary Fund through a quota system that is based on a country's relative size in the global economy. The IMF can also boost funding through multilateral and bilateral borrowing programs.
What are the operational goals?
An organization established to promote international financial cooperation. Through the creation of a convertible currency system with a fixed exchange rate. At the time, the dollar was convertible into gold at a rate of $35 per ounce. The IMF will monitor this system to ensure its effectiveness.
For example, a country is free to adjust its exchange rate up to 10% in either direction. But, larger changes must the permission of the IMF.
The main operational objectives of IMF The following include:
Promote international cooperation activities through consulting and collaboration activities
Ease the expansion and promotion of international trade activities. Thereby increasing the employment rate and real income of member countries
Stabilizing foreign exchange to ensure orderly foreign exchange transactions among members. Avoid competitive devaluations
Support the establishment of a payment system among member countries. Besides removing foreign exchange barriers to promote trade activities
Provide the fund's reserve resources to ensure safety and provide an opportunity for member countries to resolve
Functions and Duties of the IMF
The mission describes on the website as “furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity”. Up to now, the IMF continues to perform the following 3 main tasks.
The IMF will collect a large amount of information about the national economy, international trade, and the global economy in general. The purpose of this is to check and provide analysis and evaluation. Thereby advising on development direction to member countries.
The organization also releases national and international economic forecasts. These forecasts will publish in the World Economic Outlook report. Along with that were lengthy discussions about the impact of fiscal, monetary, and trade policies on the outlook for stable growth.
IMF provides technical assistance, training, and policy advice to member countries through its capacity-building programs. These programs include training in data collection and analysis, which feed into the IMF's project of monitoring national and global economies.
The training content includes the ability to collect data analysis and data processing. These programs are often included in the project of monitoring the economies of the IMF.
The IMF makes loans to countries experiencing economic difficulties. The purpose of this is to prevent or mitigate financial crises. SDR 11.4 billion was loaned to member countries in 2019 to support concessional lending activities. IMF in the next decade. This number is even higher than the original target of 0.4 SDR.
Funds of the IMF often help the receiving countries. The aim is to install reforms to increase growth potential and financial stability. The subjects of loans are usually countries that have had a balance of payments problems.
These loans are often quite beneficial to borrowing countries. For example, interest-free loans with long maturities are intended to help countries in need. This is the core mission of IBM.
What is the difference between the International Monetary Fund and the World Bank?
Both institutions were founded at the Bretton Woods conference, and they have complementary missions. The World Bank seeks to reduce poverty and increase shared prosperity in developing countries, while the IMF stabilizes the international monetary system and monitors the world’s currencies.
The World Bank provides financing, policy advice, and technical assistance to governments and provides programs to strengthen the private sector in developing countries. The IMF monitors the economy both globally and in member countries, lends to countries facing balance-of-payments difficulties, and offers practical help to members. Countries must first join the IMF to be eligible to join the World Bank.
The IMF plays the role of a global financial balancer and acts as an intermediary to promote economic cooperation for countries around the world. Understanding how it works and keeping an eye out for alerts IMF presented will contribute to creating an overview of world finance. Helps investors know developments and predict future actions. Stay tuned for the next exciting news from FXCE.
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