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With reference to the reserve tranche, consider the following statements:
1. The reserve tranche is an emergency account that IMF members can access without agreeing to conditions or paying a service fee.
2. The reserve tranches that countries hold with the IMF are considered their facilities of last resort.
Which of the statements given above are correct?
  • a)
    1 only
  • b)
    2 only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
With reference to the reserve tranche, consider the following statemen...
  • Statement 1 is correct: The IMF is funded through its members and their quota contributions. The reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee. In other words, a portion of a member country’s quota can be withdrawn free of charge at its own discretion.
  • Statement 2 is incorrect: The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they will tap into the reserve tranche before seeking a formal credit tranche. In theory, members can borrow over 100% of their quota. However, if the amount being sought by the member nation exceeds its reserve tranche position (RTP), then it becomes a credit tranche that must be repaid in three years with interest. Initially, member nations’ reserve tranches are normally 25% of their quota. However, their RTP can change according to any lending that the IMF does with its holdings of the member’s currency.
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Most Upvoted Answer
With reference to the reserve tranche, consider the following statemen...
Reserve Tranche
The reserve tranche is an emergency account that IMF members can access without agreeing to conditions or paying a service fee. This means that countries can draw on their reserve tranche funds in times of economic crisis or when facing balance of payments difficulties without having to meet any specific conditions set by the IMF.

Facility of Last Resort
The reserve tranches that countries hold with the IMF are indeed considered their facilities of last resort. This is because countries can only access their reserve tranche funds after they have used up all other sources of financing available to them, such as their regular access to IMF resources or other forms of external borrowing.
Therefore, the correct statement is that the reserve tranche is an emergency account that IMF members can access without conditions or fees, making option 'A' the correct choice.
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With reference to the reserve tranche, consider the following statements:1. The reserve tranche is an emergency account that IMF members can access without agreeing to conditions or paying a service fee.2. The reserve tranches that countries hold with the IMF are considered their facilities of last resort.Which of the statements given above are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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