Question

Define the following terms and, briefly, indicate their relevance in international finance: a) IMF conditionality; b) The Eurodollar (xenocurrency) market.

c) External balance; d) Direct controls

Answer 1

a. IMF Conditionality : When IMF borrows from the IMF, the government adjusts its economic policies to prevent the need of such financial aid in future. These are the conditions attached to the IMF loans and ensure that the country repays the loans. This helps in making the economy robust by promoting implementation of strong and effective policies.

b. The Eurodollar market: It refers to the U.S. dollar deposits in banks outside the United States which includes the foreign branches of the U.S. banks. Since they were originally held exclusively in Europe, their name is Eurodollar. They are now widely held in branches located in other parts of the world.

c. External balance - External balance of a country refers to the case when the country brings in exports is roughly equal to the money it spends on imports.

d. Direct Controls: It refers to a form of government intervention aimed at increasing or decreasing some particular group of payments or receipts in the balance of payment. There are various types of direct controls taken by the government, for instance, financial controls, like exchange rate controls, Commercial Controls like quantitative regulations and Controls on the movement of capital.