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International Financial Management

Notes through the European Monetary Cooperation Fund (EMCF). The EMCF gives various short-
term and medium-term credit facilities depending upon the deficit country’s needs. Very short-
term financing is granted for 45 days, short-term monetary support for three months renewable
up to two times, medium-term financial assistance for a period of two to five years. Credit
facilities are granted directly by one member country to another and are accounted for in ECU
terms through the EMCF.

Task ‘The International Monetary System, as we have today, has evolved through several
different exchange rate arrangements over a period of time’. Comment.

Self Assessment

Fill in the blanks:
12. The European Currency Unit serves as the accounting unit of the EMS and helps in the
working of the …………………….

13. The …………………… gives various short-term and medium-term credit facilities
depending upon the deficit country’s needs.
14. Exchange rate mechanism refers to the procedure by which the EMS member countries
collectively manage their …………………….
15. The …………………… is a “basket” currency based on a weighted average of the currencies
of member countries of the European Union.

Case Study International Financial Market

he recent turmoil in financial markets has led to an uncertain situation. Although
market liquidity problems should recede in the coming time, wider credit spreads
Twould persist, reflecting a welcome reappraisal of risk following a period of unusual
compression. Inevitably, there will be some impact from tight credit conditions on activity.
Accordingly, the IMF growth forecast for the coming years will be marked down, but
growth will nonetheless remain at a strong level. IMF expects the macroeconomic impact
to be greatest in the United States, where the housing correction is likely to be more
prolonged than we thought previously. Tighter credit conditions could also dampen
domestic demand in Europe and Japan, and there may be trade and financial spill-over
elsewhere too.
A combination of solid fundamentals and appropriate action by central banks and other
authorities could help to calm rough financial waters and provide resilience to the global
economic expansion. In advanced economies, economic fundamentals remain solid. The
balance sheets of core financial institutions were strong at the onset of the current market
turbulence, while the financial positions of corporations remain robust. These economies
also entered into the period of turmoil with positive levels of business confidence, and
generally healthy situations in labour markets and household net wealth.
As for Emerging Market Countries (EMCs), recent growth momentum has been very
strong and improved balance sheets and policy frameworks have provided resilience in
Contd...

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