M7 Study Guide

M7S1 Important Notes

1. A financial institution is a company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans, investments, and currency exchange. Typical
examples of normal financial institutions include banks, credit unions, investment companies,
brokerage firms, insurance companies, etc. Take
2. International financial institutions (IFIs) play a major role in the social and economic
development programs of nations with developing or transitional economies. This role includes
advising on development projects, funding them and assisting in their implementation.
3. A simple way to describe an IFI is that it is a bank that operates at the international level that
performs the function of aiding developing countries achieve social and economic development.
4. IFIs have shared goals: to reduce global poverty and improve people's living conditions and
standards; to support sustainable economic, social and institutional development; and to
promote regional cooperation and integration.
5. IFIs have five categories: commodity or industry-specific organizations, commissions and
agencies managing shared resources, development funds and banks, international trade
agreements involving a few nations, and global organizations for trade, development, and
macroeconomic stability.
6. Commodity or industry-specific organizations are concerned with a specific type of commodity.
Their scope only go as far as those commodities are involved. OPEC is an example of this type.
7. Commissions and agencies managing shared resources are concerned with a specific shared
resource. Their scope only go as far as that shared resource is involved.
8. Development funds and banks are concerned with the development efforts of a specific
clientele. Their scope only go as far as their beneficiaries are involved. The Asian Development
Bank is an example of this type.
9. International trade agreements involving a few nations are alliances between countries usually
done for the purpose of trade. Their scope is usually regional.
10. Global organizations for trade, development, and macroeconomic stability are IFIs that serve the
entire globe.

M7S2 Important Notes

1. The three global organizations playing a major role in international economic relations are: the
IMF, the World Bank, and the World Trade Organization.
2. The IMF is governed by and accountable to the 189 countries that make up its near-global
membership. Its primary purpose is to ensure the stability of the international monetary system.
The international monetary system is the system of exchange rates and international payments
that enables countries (and their citizens) to transact with each other.
3. The IMF fulfills its purpose through three functions: in the economic surveillance function of the
IMF, it oversees the international monetary system and monitors the economic and financial
policies of its 189 member countries. As part of this process, which takes place both at the
global level and in individual countries, the IMF highlights possible risks to stability and advises
on needed policy adjustments.
4. In the lending function of the IMF, it provides loans to member countries experiencing actual or
potential balance of payments problems to help them rebuild their international reserves,
stabilize their currencies, continue paying for imports, and restore conditions for strong
economic growth, while correcting underlying problems.
5. In the capacity development function of the IMF, it works with governments around the world
to modernize their economic policies and institutions and train their people. This helps countries
strengthen their economy, improve growth and create jobs.
6. The World Bank is not a bank in the ordinary sense but a unique partnership to reduce poverty
and support development.
7. One of the goals of the World Bank Group which must be achieved by 2030 is: end extreme
poverty by decreasing the percentage of people living on less than $1.90 a day to no more than
3%.
8. Another one of the goals of the World Bank Group which must be achieved by 2030 is: promote
shared prosperity by fostering the income growth of the bottom 40% for every country.
9. The World Bank provides low-interest loans, zero to low-interest credits, and grants to
developing countries. The Bank offers support to developing countries through policy advice,
research and analysis, and technical assistance.
10. The World Trade Organization (WTO) is the only global international organization dealing with
the rules of trade between nations. The World Trade Organization is an organization for trade
opening. It is a forum for governments to negotiate trade agreements. It is a place for them to
settle trade disputes. It operates a system of trade rules.
11. Regional trade agreements, while serving other functions, can also perform the functions done
by IFIs. RTAs can come in five forms.
12. A partial trade agreement is where two or more countries liberalize trade in a selected group of
product categories.
13. A free trade area is where trade in goods and services is fully liberalized between two or more
countries.
14. A customs union is a free trade agreement between all countries involved but they implement a
common external tariff for other countries that are not part of their trade agreement.
15. A common market is a customs union that allows free mobility of the factors of production
between all of its members.
16. An economic union is a common market with coordination of macroeconomic policies (including
common currency, harmonization of standards, and regulations). The European Union qualifies
as an economic union because all their member countries use the same currency (the Euro),
follow the same laws, same standards, etc.
17. Some groups oppose the existence of IFIs. Some of the commonly stated reasons include: (1)
some groups feel that globalization is dangerous (IFIs are products of and promoters of
globalization), and (2) international institutions are undemocratic.