[Mission 2023] STATIC QUIZ, 11 October 2022 – Economy

Solution: b)

Debtor Reporting System (DRS) is a statistical reporting system maintained by the World Bank to monitor the debt of developing countries. It was established in 1951. Information is supplied through reports from debtor countries.

Solution: b)

Twice every year — April and October — the IMF comes out with its World Economic Outlook (WEO). It does provide regular “updates” to the WEO on other occasions. The WEO reports are significant because they are based on a wide set of assumptions about a whole host of parameters — such as the international price of crude oil — and set the benchmark for all economies to compare and contrast.

Solution: c)

The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.

The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro, pound sterling and Chinese Renminbi. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not directly determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket.

It can be held and used by member countries, the IMF, and certain designated official entities called “prescribed holders”—but it cannot be held, for example, by private entities or individuals. Its status as a reserve asset derives from the commitments of members to hold, accept, and honor obligations denominated in SDR. The SDR also serves as the unit of account of the IMF and some other international organizations.

Solution: b)

International Finance Corporation (IFC):

• It is an international financial institution that offers investment, advisory, and asset management services to encourage private sector development in developing countries.
• It is a member of the World Bank Group and is headquartered in Washington, D.C., United States.
• It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects that purport to reduce poverty and promote development.
• The IFC is owned and governed by its member countries, but has its own executive leadership and staff that conduct its normal business operations.
• It is a corporation whose shareholders are member governments that provide paid-in capital and which have the right to vote on its matters.
• Since 2009, the IFC has focused on a set of development goals that its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve healthcare and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health.
• It offers an array of debt and equity financing services and helps companies face their risk exposures while refraining from participating in a management capacity.

Solution: b)

The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies. It cannot be used to fund infrastructure projects as it is not a currency. Same goes for settling domestic financial bills of the government.

SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves.

IMF member countries can borrow SDRs from its reserves at favorable interest rates, mostly to adjust their balance of payments to favorable positions.