IMF And Foreign Exchange Market Essay

Question:

Discuss about the IMF And The Foreign Exchange Market.

Answer:

Introduction

The assignment highlights on the association between the foreign exchange, the International Monetary Fund (IMF) and the international economic environment. The IMF and the foreign exchange market are inextricably connected to each other in the global market. This study also explains about IMF and the foreign exchange market impact international economic environment.

The Foreign Exchange, the IMF and the International Economic Environment

The IMF is the organization of total 189 nations that work towards fostering monetary corporation, facilitating international trade, securing financial stability, promoting higher employment, reducing poverty and improving economic growth. The main objective of IMF is to assure stability in foreign monetary system, which consists of foreign exchange rate system and the international payment. This in turn enables the nations to tackle transaction between one another. One of the related concepts to IMF is the foreign exchange market (FOREX) that aims to oversee as well as manage trading of foreign exchange of some of the major currencies (Hodrick, 2014) . Under the FOREX, the nation’s monetary policy becomes no longer dependent on value of currencies of other nations but becomes dependent on both demand and supply of currencies.

The IMF also affects the international economic environment as they advises several member nations on financial as well as economic policies that decreases vulnerability to crisis, motivates sustained growth as well as higher standard of living and promotes international economic stability (The IMF and the Environment., 2018). Besides this, this institution also monitors international economic trends as well as developments that impact the performance of international monetary as well as financial system. In addition to this, they also provide these countries technical assistance in order to help them strengthen institutional capacity and also give availability of resources to them. Furthermore, they helps in balanced growth as well as expansion of international trade and also contribute to promotion of increased employment level and real income of the nation (The IMF at a Glance., 2018). Apart from this, IMF also helps the nations adopt sound policies through their vital functions of surveillance and lending. However, the IMF has also supported the policy reforms including price, foreign exchange rate, taxes and subsidies, which in turn tends to promote more utilization of resources and thus discouraged waste. This in turn benefits the international economic environment and thereby stabilizes the global economy.

IMF periodically reviews the economic policies of the member nations including their system of exchange rate. The IMF operations also help these countries to counter volatility in market. Moreover, they also criticize unrelenting intervention, which in turn prevents the foreign exchange rate to adjust for reducing imbalances in trade as well as payments.

Conclusion

From the above study, it can be concluded that IMF plays huge role in the foreign exchange market and international economic environment. The three main operations of IMF are- surveillance, capacity development and financial assistance. These operations help to stabilize foreign exchange and enhance the growth of global economy.

References

Hodrick, R. (2014). The empirical evidence on the efficiency of forward and futures foreign exchange markets (Vol. 24). Routledge.

Oatley, T. (2015). International political economy. Routledge.

The IMF and the Environment. (2018). Imf.org. Retrieved 24 March 2018, from

The IMF at a Glance. (2018). IMF. Retrieved 24 March 2018, from

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