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Consider the following about Special Drawing Right (SDR) 1. The SDR is an international reserve asset created and administered by the WTO 2. SDRs can be exchanged for freely usable currencies 3. A Gold backing is mandatory for a nation to increase SDR deposits 4. The SDR is a not the financial claim on the IMF as it is accepted by most international organizations Which of the above statements is/are correct?

Consider the following about Special Drawing Right (SDR) 1. The SDR is an international reserve asset created and administered by the WTO 2. SDRs can be exchanged for freely usable currencies 3. A Gold backing is mandatory for a nation to increase SDR deposits 4. The SDR is a not the financial claim on the IMF as it is accepted by most international organizations Which of the above statements is/are correct? Correct Answer 2 and 4 only

The correct answer is 2 and 4 only

Key Points

  • The SDR was created by the IMF in 1969 as a supplementary international reserve asset, in the context of the Bretton Woods fixed exchange rate system. Hence, statement 1 is incorrect.
  • A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase its domestic currency in foreign exchange markets, as required to maintain its exchange rate. Hence, statement 2 is correct.
  • The value of the SDR is based on a basket of five major currencies—the US dollar, the euro, the Chinese renminbi (RMB), the Japanese yen, and the British pound sterling. No gold backing is needed. Hence, statement 3 is incorrect.
  • The SDR is neither a currency, nor a claim on the IMF. Hence, statement 4 is correct.
  • Rather, it is a potential claim on the freely usable currencies of IMF members.
  • Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.

Related Questions

Read the passage carefully and select the best answer to each question out of the given four alternatives. The conclusion of World Trade Organizations 11thbiennial ministerial conference at Buenos Aires was worrisome. From an Indian standpoint, there was no loss asstatus quo continues in the most important issue: the right to continue the food security programme by using support prices. But the inability of the negotiators toreach even one substantive outcome suggests that WTOs efficacy is under question. As a 164-country multilateral organisation dedicated to crafting rules of tradethrough consensus, WTO represents the optimal bet for developing countries such as India. Strengthening WTO is in Indias best interest. Perhaps the biggest threat to WTOs efficacy today is the attitude of the US. The worlds largest economy appears to have lost faith in the organisation and hasbegun to undermine one of its most successful segments, the dispute redressal mechanism. This is significant as the US has been directly involved in nearly half ofall cases brought to WTO. Separately, large groups of countries decided to pursue negotiations on e-commerce, investment facilitation and removal of tradeobstacles for medium and small scale industries. By itself this should not weaken WTO. But it comes at a time when there is growing frustration with gridlock atWTO. India did well to defend its position on its food security programme. The envisaged reform package which will see a greater use of direct cash transfers tobeneficiaries will be in sync with what developed countries do. But its important for India to enhance its efforts to reinvigorate WTO. In this context, Indias plan toorganise a meeting of some countries early next year is a step in the right direction. WTO represents the best available platform to accommodate interests of adiverse set of nations. Therefore, India should be at the forefront of moves to fortify it. Which of the following nation is keen to fortify its interest on WTO platform?
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Which combination of the following is correct with regard to World Trade Organization (WTO) :
1. WTO initiates peace process among the member countries to enhance international trade.
2. WTO avoids the task of "Settlement of Disputes" among the member countries.
3. WTO administers the "Trade Review Mechanism".
4. WTO cooperates in an appropriate manner with the IMF and the World Bank.
Which combination of the following is correct with regard to World Trade Organisation (WTO)?
1. WTO initiates peace process among the member countries to enhance international trade.
2. WTO avoids the task of 'Settlement of Disputes' among the member countries.
3. WTO administers the 'Trade Review Mechanism'.
4. WTO cooperates in an appropriate manner with the IMF and the World Bank.
Given that, 24 carat gold is pure gold, 18 carat gold is 3/4th of pure gold and 20 carat gold is 5/6th of pure gold, the ratio of the pure gold in 18 carat gold to the pure gold in 20 carat gold is -
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