Assignment states substantial amount of knowledge regarding the functioning of IMF & foreign exchange performance

Home, - International Monetary Fund (IMF)


The discussion presented below intends to cover the role of IMF and gain an understanding of the evolution of money and all other prominent financial details that are necessary for every individual to know. 

Role of the IMF

The key role of International Monetary Fund (IMF) resides on the aim it has established of helping with the stabilisation of exchange rates and provide loans to countries who need it (Economicshelp.org, 2018). Thus, the key roles of IMF comprise of the following:

Economic surveillance and monitoring: IMF works to produce reports on the countries who are already a member and ensure the identification of their weaknesses

Provide loans to countries with financial crisis: During the times of financial crisis, the fund provides money to them and conduct the adjustment later. The IMF has about £300 billion of loanable funds

Conditional Loans/Structural adjustment: While providing loans, IMF focuses on some of the criteria that is needed to be considered such as reduction in inflation, removing price controls, removing barriers from tariffs 

Purpose of the swift and how does it assist Trinidad and Tobago

The swifts are mainly the codes that are being used to identify banks and financial institutions globally. These are mainly used by the swift networks for permitting wire transfers and messages between them. Further, for conducting international wire transfers, swift codes are mainly used for making the transactions secure and fast (). The use of the swift codes would allow all the banks of Trinidad and Tobago to ensure that they are able to conduct the financial transfers in a convenient manner. Also, it is essential to understand that this swift code is unique and the directory permits multiple businesses or individuals with an easy option to avoid bank transfer and money transfer mistakes. In case of any mistake or discrepancy, it also provides compliance services and offers facilities related to reporting and other utilities such as Know Your Customer (KYC) and provisions related to Anti Money Laundering (AML).

The evolution of money then to now

The process of Bartering was used instead of money to buy goods in the early years. Some of the earlier forms of barter comprises of cattle, sheep, vegetables and fruit. In addition, it has been identified that the first known currency was introduced by King Alyattes in Lydia. The first coin ever minted featured a roaring lion. The coins later evolved to bank notes in the time of 1661 AD and in the year of 1999 the first mobile banking began (Burn-Callander, 2018). After the time of 2014, cashless payments and bitcoins started to gain popularity among the population. Also, the first credit card was launched in the year of 1946. 

The IMF classified the exchange rate in to regime 10

The concept of regimes of exchange rate is associated with the exchange arrangements that does not involve any legal tender. Here, the dominant feature is the currency of a particular country that acts as the sole trader, or the member is a part of financial union where the similar legal tender is being considered by many. The use of these regimes indicate that the complete surrendering of the financial control provides with an opportunity to have an independent control over the domestic monetary policy (Levy-Yeyati&Sturzenegger, 2016). Apart from the exchange rate regimes, there is also an involvement of the currency board arrangements, conventional arrangements, of pegs that are fixed, Exchange rates that are pegged within Horizontal bands, the crawling pegs, the exchange rates within the crawling bands and many others. The political adversity in the country was mainly caused by the drug war between the Mexican and the Colombian cartels operating in the country resulted in the declaration of state of emergency that also caused a casualty in the financial aspect of the country (Political risk and the emergency, 2018). 

A flexible exchange rate system

The beneficiaries and drawbacks of a flexible exchange rate system can be considered with the help of proper understanding of its advantages and disadvantages. Some of the beneficiaries of having a flexible exchanges rates comprise of their ability to be automatic stabilizers, thereby maintaining an internal and external balance (Ilzetzki, Reinhart&Rogoff, 2017). Further, the countries are also permitted with the opportunity to ensure that. Some of the prominent downsides of flexible exchange rates comprise of exchange in the rate of risk and conducting the autonomous monetary policies at an extensive rate would create much higher inflation rates. At the same time, when the expansionary monetary are extensively used, the inflation rates tend to go higher. Meanwhile, the stabilizing effects can also be questioned due to the inappropriate direction that the country’s economy points to. 

The concept of dollarization

The initial concept of dollarization is associated with a foreign currency acting as a legal tender for the others. The concept of dollarization can be understood with the involvement of three essential concepts associated with it. The first concept is dollarization of assets which comprise of the use of foreign currency for any three function of money such as unit of account, exchange means and storing value (Dollarization - On the Definition of Dollarization, 2018). The second concept is liability dollarization that refers to the currency and banking crisis in the developing market due to the obligations for the government regarding foreign currency debt. The third concept is partial and full dollarization refers to that particular situation when a country abandons its own currency and emphasises on the use of the currency of another country as a form of payment. There are multiple countries who have undertaken the concept of dollarization and are conducting all of their operations accordingly. One such example is of Panama. 

List the main market and its participants in the foreign exchange market

The main market here is Trinidad and Tobago and being one of the wealthiest country of the Caribbean, it has also been identified as the high-income economy by the World Bank. The economy of the country has been considered as primarily industrial and have been ensured that their foreign exchange operations mainly occur with the European countries or with USA. There are no exchange controls on the country’s foreign currency and securities (Pilbeam, 2018). The central bank of the country manages the initial nominal exchange rates, permitting it to fluctuate within a very narrow band and ensure that the financial system of the country is still well-organized and regulated. In the current scenario, the government has been succumbed to political risk due to rise in conflicts among drug warlords and ensure that the criminal activities can be minimised (Political risk and the emergency, 2018). 


The report provided above generated substantial amount of knowledge regarding the functioning of IMF and focused on the foreign exchange performance of one of the wealthiest country in Caribbean named Trinidad and Tobago. The country has not enough regulations on their foreign exchange rates functions but at the same time focused on the involvement of their central bank for their monetary operations. 

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