Question

    With reference to the IMF Bailouts, consider the

    following statements:         I.            Countries seek help from the IMF usually when their economies face a major macroeconomic risk or political instability.       II.            The IMF lends money to the troubled economies often in the form of Bonds.     III.            SDRs simply represent a basket of five currencies, namely the U.S. dollar, the euro, the Chinese yuan, the Japanese yen, and the British pound. Which of the statements given above is/are not correct?
    A I and II both Correct Answer Incorrect Answer
    B I only Correct Answer Incorrect Answer
    C I and III only Correct Answer Incorrect Answer
    D II only Correct Answer Incorrect Answer
    E III only Correct Answer Incorrect Answer

    Solution

    Countries seek help from the IMF usually when their economies face a major macroeconomic risk, mostly currency crisis (such as the ones Sri Lanka is facing). Countries seek such assistance from the IMF to meet their external debt and other obligations, to purchase essential imports, and to prop up the exchange value of their currencies. The IMF lends money to the troubled economies often in the form of Special Drawing Rights (SDRs). SDRs simply represent a basket of five currencies, namely the U.S. dollar, the euro, the Chinese yuan, the Japanese yen, and the British pound. This lending is carried out by a number of lending programs such as extended credit facility, flexible credit lines, stand-by agreements, etc.

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