International Monetary Fund (IMF)

Choose the Correct Answer

Correct Answer : Option a

Explanation
Statement 1 is not correct: SDR is an international reserve asset created by the IMF to supplement member countries' forex reserves. The SDR is not a currency. It is a basket of currencies that includes: the US dollar, Euro, Chinese Yuan, Japanese Yen, and the British Pound. SDRs can be exchanged with the currencies in the basket.
It does not determine a country’s voting power, and access to IMF resources.​ The IMF allocates SDRs to its members in proportion to their standing in the organization, which is largely based on their share of the global economy.

Statement 2 is correct: When a country joins the IMF, it is assigned a Quota which is based on the country's GDP (50%), openness (30%), economic variability (which means fluctuations in current and capital account, 15%) and international reserves (5%). Quotas are denominated in Special Drawing Rights (SDRs), the IMF's unit of account. Quota is used to determine the following:
1. Subscription (maximum amount of financial resources that a member is obligated to provide to the IMF),
2. Voting power/rights in IMF decision making,
3. Member country's share of SDR allocations (acts as debt on member country)
4. Borrowing capacity (financial assistance a member may obtain from the IMF)

Statement 3 is not correct: RTP is that proportion of the Quota which the IMF member country can designate for its own use. The reserve tranche portion of the quota can be accessed by the member nation anytime at its own discretion (and is not under an immediate obligation to repay those funds to the IMF), whereas the rest of the member's quota is typically inaccessible. Member nation reserve tranches are typically 25% of the members’ quota and are accounted for among the country's foreign exchange reserves.
Foreign Exchange Reserve of a Country = Foreign Currency Assets + Gold + SDR + RTP