Student Question

What is the World Bank, and what are the interactions between it and the exchange rate of the foreign exchange market?

Quick answer:

The World Bank consists of five organizations that offer financial assistance, including loans, advice, and research, to developing nations. The World Bank's interaction with the exchange rate is primarily about providing current information. The International Monetary Fund helps to manage the exchange rate by collecting and distributing financial information.

Expert Answers

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The World Bank consists of five organizations that come together to provide financial assistance to the developing nations of the world. It does this in the form of loans, research, and advice. The World Bank Group is dedicated to fighting poverty and to helping countries develop their infrastructure, educational resources, healthcare systems, public administration, and businesses, as well as their “human capital” (i.e., their citizens as productive members of society).

The World Bank's interaction with exchange rate on the foreign exchange market (i.e., how much of a foreign currency a particular nation's own currency can buy) is primarily about making sure countries know the current exchange rates and handle them in the most financially effective way.

The World Bank's partner organization, the International Monetary Fund (IMF), is actually more directly active in influencing exchange rates. The IMF used to stabilize exchange rates according to the fixed gold standard or the gold-exchange standard (i.e., currencies backed either by gold or by currencies based on gold), but the fixed exchange rate ended in the 1970s. Now the foreign exchange market operates on a floating exchange rate that the IMF helps to manage.

Members of the IMF must agree to let their currency be freely exchanged and to keep the IMF up to date about changes in policies and economic actions. The IMF provides current information to all of its members so there will be no surprises about currency exchange. The organization provides reports about its members so that everyone has clear knowledge and can work together toward economic order and prosperity.

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