3. What are the economic functions of each of the major International Institutio

Question

3. What are the economic functions of each of the major International Institutions? Are they fulfilling their economic function?

4. In a globalized financial system, an action taken by a central bank affects different countries. In light of this connection, discuss the economic effects of the appreciation of the Chinese currency on the U.S economy by identifying the different economics channels through which a change in exchange rate affects trade

Explain how a government can maintain a fixed exchange rate below the long term equilibrium exchange rate.

What are the downsides of this approach?

What are the two components of International Economics?

Explanation / Answer

Answer 3: The three institutions are their functions:

1. International Monetary Fund (IMF)

a) Maintaining currencies balance in the economy
b) Tariffs exemption
c) Maintaining exchange rate.

2. The International Bank for Reconstruction and Development (IBRD

a) Its main function is to provide developmental assistance mainly to the developing and under develop countries
b) To increase foreign investment

3. The World Bank

a) To eliminate poverty by offering loans at lower rates
b) To provide grants and interest free credits

Answer 4:

In term equilibrium exchange rate, to prevent from falling currency government will buy surplus, this will reverse the foreign currency which are bought earlier, in this case the domestic currency will rise.

Due to huge currency involvement there may be changes of higher inflation or may cause price rise

Two components of International Economics are International Trade and International Finance

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