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Special Drawing Rights (SDR) can be used to
1. Supplementing IMF member countries' official reserves.
2. Settle Balance of Payment transactions
3. Bridge fiscal deficit and fund infrastructure projects
Select the correct answer code:
- a)1 and 3 only
- b)1 and 2 only
- c)1 only
- d)All of the above
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Special Drawing Rights (SDR) can be used to1. Supplementing IMF membe...
The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies. It cannot be used to fund infrastructure projects as it is not a currency. Same goes for settling domestic financial bills of the government.
SDR allocations can play a role in providing liquidity and supplementing member countries' official reserves.
IMF member countries can borrow SDRs from its reserves at favourable interest rates, mostly to adjust their balance of payments to favourable positions.
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Community Answer
Special Drawing Rights (SDR) can be used to1. Supplementing IMF membe...
The correct answer is option 'B' - 1 and 2 only.
Explanation:
Special Drawing Rights (SDR) are a type of international reserve asset created by the International Monetary Fund (IMF) to supplement the official reserves of its member countries. They were created in 1969 and their value is based on a basket of major currencies, including the US dollar, euro, yen, pound sterling, and the Chinese renminbi.
Uses of Special Drawing Rights (SDR):
1. Supplementing IMF member countries' official reserves:
One of the primary uses of SDR is to supplement the official reserves of IMF member countries. When a member country faces a shortage of foreign exchange reserves, they can use SDRs to supplement their reserves and maintain stability in their economy. SDRs act as a form of international liquidity that can be exchanged for freely usable currencies.
2. Settle Balance of Payment transactions:
SDRs can also be used to settle balance of payment transactions between member countries. When a country has a deficit in its balance of payments, it can use SDRs to make payments to other countries and settle its obligations. This helps to facilitate international trade and maintain stability in the global financial system.
3. Bridge fiscal deficit and fund infrastructure projects:
The statement incorrectly mentions that SDRs can be used to bridge fiscal deficit and fund infrastructure projects. SDRs are primarily used for supplementing reserves and settling balance of payment transactions, rather than directly financing fiscal deficits or funding specific projects. These tasks are typically undertaken through other means such as government borrowing, taxation, and budgetary allocations.
In conclusion, Special Drawing Rights (SDR) can be used to supplement IMF member countries' official reserves and settle balance of payment transactions. Therefore, the correct answer is option 'B' - 1 and 2 only.
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Special Drawing Rights (SDR) can be used to1. Supplementing IMF member countries' official reserves.2. Settle Balance of Payment transactions3. Bridge fiscal deficit and fund infrastructure projectsSelect the correct answer code:a) 1 and 3 onlyb) 1 and 2 onlyc) 1 onlyd) All of the aboveCorrect answer is option 'B'. Can you explain this answer?
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