17. How does the International Monetary Fund (IMF) provide loans to deficit-lade

Question

17. How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

A. It prints the required currencies, thereby increasing money supply in those countries.

B. It acts as a market, buying goods from these countries and selling them to developed countries.

C. A pool of gold and currencies contributed by its members provides the resources for lending operations.

D. The World Bank lends the required amount to the IMF at a low interest rate.

E. It collects money from those countries that wish to devaluate their currencies.

Explanation / Answer

IMF raise majority of its resources that it utilize to disburse loan to member countries through assigning of quota to its member countries. This quota is nothing but the amount (in form of gold or currency) that each member country has to contribute to IMF. This quota for a country is fixed based on relative economic strength of that country in world order.

Thus, it can be stated that the IMF provide loans to deficit-laden countries from a pool of gold and currencies contributed by its members.

Hence, the correct answer is option (C).

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