Summary of The IMF's Unmet Challenges and Explanation of PPP and IFE

Contents
Part A: “A summary of: “The IMF’s Unmet Challenges” by Barry Eichengreen
and Ngaire Woods, Journal of Economic Perspectives—Volume 30, Number 1
—Winter 2015—Pages 29–52”.................................................................................2
The Unmet Challenges-........................................................................................... 2
Surveillance............................................................................................................. 3
Exchange Rates and Capital Flows as a Case in Point.............................................3
Lending and conditionality...................................................................................... 4
Resolution of Sovereign debt problems...................................................................4
Governance reforms................................................................................................ 4
b) i) Explain why PPP and IFE in theory makes derivatives unnecessary..4
Testing the PPP theory-........................................................................................... 5
International Fisher Effect-...................................................................................... 6
ii) Evaluate the differing ways in which derivatives can protect against the
failings of IFE and PPP............................................................................................ 8

Part A: “A summary of: “The IMF’s Unmet Challenges”
by Barry Eichengreen and Ngaire Woods, Journal of
Economic Perspectives—Volume 30, Number 1—Winter
2015—Pages 29–52”.
The International Monetary Fund is a contentious organization that frequently
causes enthusiastic responses to measures. On the one hand, there are those like
Krugman (1998) and Nissan (2015) who believe that the IMF is an "integral
organization." On the other hand, there are commentators who claim that the Fund
is misrepresentative, ineffective, and a systemic risk mechanism and believe that
without it the earth would be better off. Dispassionate evaluation should begin by
articulating the issues to be solved by the IMF. The concern should then be if the
Finance is properly organized to solve these issues— and whether it can do so
without generating another similarly severe problem.
The efficacy of the IMF, like a soccer referee, relies on whether the teams see it as
qualified and unbiased in performing these tasks.
The Unmet Challenges-
The discussion is of the apparent expertise and neutrality of the Financing, and
therefore its efficiency, is restricted by its inability to satisfy four difficulties. Some
of these are visual difficulties: the reliable consultant does not always understand
what to recommend.

Others are feasible: the objectivity of the IMF is challenged as a consequence of its
organization. All four difficulties endanger the organization's credibility and thus its
ability to perform its key tasks.
The first unmet obstacle is how to arrange the monitoring by which the IMF controls
its 188 member states 'economic and monetary policies. Underlines potential parity
hazards and provides advice on necessary policy changes'
Next, there is ambiguity as to what type of condition to IMF credits should be linked.
Conditionality relates to state policy obligations taken in exchange for help.
Thirdly, the function of the IMF in managing government debt crises is in dispute.
Numerous shareholders, important trading costs and the lack of a globally accepted
regulatory framework to resolve government debt situations generate coordination
problems that represent a primary case for a international organization such as the
IMF to be involved.
Fourth, issues of regulation raise concerns about the neutrality of the Financing.
Certain members have an outsized presence that allows them to alter decision-
making in ways that are compatible with their country's interest, even if those ways
are at war with both the concern of IMF affiliation and the widely established
flexibility of the global currency and economy.
These credibility issues will need to be resolved so that the IMF can perform a more
efficient part in the present and upcoming times.
Surveillance
For all these reasons, IMF monitoring has a function to play as a counterbalance.
The fundamental reasons are not the same as those that motivate the benchmarks
used by national administrators to measure hazards to the prosperity of state
banks, with the topic being the national balance sheet instead of a bank balance
sheet in this case. The fact that the Fund enacts both joint and multilateral
monitoring (monitoring of nation states in the first example and of organizations of
nations and the worldwide structure in the second scenario) is then similar to the
search by national officials accountable for economic stabilization of small-
prudential and large-prudential strategies. Proof on removal prices, equality issues
and the complexity of harsh truth-telling indicate that IMF procedural and
management amendments would help reinforce the monitoring role.
Exchange Rates and Capital Flows as a Case in Point
The IMF was established to tackle the issues caused in the 1930s by disruptive and
volatile exchange rates and to prevent exchange rate measures that could hurt
domestic markets and interrupt the global system's function. The issue is whether
currencies still merit this unique place in today's tracking and, if so, what type must
tracking and recommendations take. We think the absence of clearness on the
responses is an important component of what in exercise generates misgivings