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MIND MAP CHAPTER 3 - Coggle Diagram
MIND MAP CHAPTER 3
Describe the major determinants of exchange rate below:
Inflation Rates
Inflation is the relative purchasing power of a currency compared to other currencies.
For example, it might cost one unit of currency to buy an apple in one country but cost a thousand units of a different currency to buy the same apple in a country with higher inflation.
Interest Rates
Interest rates are tightly tied to inflation and exchange rates. Different country’s central banks use interest rates to modulate inflation within the country.
For example, establishing higher interest rates attracts foreign capital, which bolsters the local currency rates.
Income Levels
Income level of the country determines the imports demanded which affects the exchange rate.
For example, the demand schedule for pounds will shift outward reflecting the increase in US income and therefore increased demand for British goods
Government Controls
Governments have a collection of tools at their disposal through which they can manipulate their local exchange rate.
Primarily, central banks are known to adjust interest rates, buy foreign currency, influence local lending rates, print money, and use other tools to modulate currency exchange rates.
Capital Flow
Foreign capital tends to flow into countries that have strong governments, dynamic economies, and stable currencies.
A nation needs a relatively stable currency to attract capital from foreign investors. Otherwise, the prospect of exchange-rate losses inflicted by currency depreciation may deter overseas investors.
List the roles of International Monetary Fund (IMF)
Monitoring Member Country Economies
The International Monetary Fund's primary job is to promote stability in the global monetary system. So, its first function is to monitor the economies of its 190 member countries. This activity, known as economic surveillance, happens at both the national and global levels. Through economic surveillance, the IMF monitors developments that affect member economies as well as the global economy as a whole.
Lending
The IMF lends money to nurture the economies of member countries with balance of payments problems instead of lending to fund individual projects. This assistance can replenish international reserves, stabilize currencies, and strengthen conditions for economic growth.
Technical Assistance
The third main function of the IMF is through what it calls capacity development by providing assistance, policy advice, and training through its various programs.
Elaborate the International Monetary Fund (IMF)
The International Monetary Fund, or IMF, promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty. The IMF is governed by and accountable to its 190 member countries