The international finance and monetary system define a framework within which different countries can borrow, sell, lend, buy and make payments across all the political frontiers. This framework is responsible for resolving the disequilibrium among the balance of payments. There has been the introduction of several frameworks to the International Finance and Monetary System with the increasing volatility of exchange rates over the past 40 years.
Although such volatile exchange rates are sure to increase risk, these also amount in creating profit opportunities for different firms and investors if there is a proper understanding of exchange risk management. However, in order to efficiently manage the foreign exchange risk, the management team have to first understand how the international monetary system works.
So, what is the current scenario of the structure of international monetary systems?
Many experts and professionals have often questioned about the current scenario of the trends in the international monetary and financial systems. The answer to the corresponding question revolves around two facts:
International Monetary Funds is an important player responsible for laying the current grounds for International Finance and Monetary Systems. It was introduced to the framework so as to administer fair exchange practices as well as compensatory financial assistance by resolving difficulties of payments.
Let us take a look at the roles of IMF:
When a member enters the framework of IMF, it has to submit a par value of the currency either in gold or US dollars. Once such values are defined, all the transactions will occur at that rate only. This is the reason why the IMF classifies all the possible exchange rates into eight categories.
If you are a student of Finance, International Business or Accounting, and are questioning why it is important to understand the international monetary system, then you are not understanding the point. Because such frameworks have been acting as the major center point of all the transactions happening around the world. The World Bank or the International Bank for Reconstruction and Development (IBRD) was introduced at the same time as the IMF to tackle the problems related to international investment. IBRD was responsible for promoting long-term investment loans at optimum rates to help the member nation to exercise the growth opportunities within their countries.
Let’s look at IBRD functions below:
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