| Consider the following statements: |
| (1) The Special Drawing Right (SDR) is a monetary unit of international reserve assets defined and maintained by the International Monetary Fund. |
| (2) The SDR is weighted sum of contributions of five major currencies, Euro, British Pound, US Dollar, Japanese Yen and the Chinese Yuan. |
| (3) SDRs are allocated to member states as a low cost alternative to debt financing for building reserves carrying an interest rate that is computed on a weekly basis. Which of the statements given above is/are correct? |
A) 1 and 2 only
B) 2 only
C) 1 and 3 only
D) 1, 2 and 3
Correct Answer: C
Solution :
[c] The Special Drawing Right (SDR) is a monetary unit of international reserve assets defined and maintained by the International Monetary Fund (IMF). The unit does not represent a currency, but represents a potential claim on the currencies of the IMF members for which it may be exchanged. [1] Allocations of Special Drawing Rights to IMF members are backed by a fund pooled by contributing nations, and they obtain their reserve asset power from the commitments of the IMF member states to hold and honor them for payment of balances. Special Drawing Rights were created in 1969 in support of the Bretton Woods system of fixed exchange rates to alleviate the shortage of U.S. dollar and gold reserves in the expansion of international trade. The SDR is defined as a weighted sum of contributions of four major currencies, the euro, the US dollar, the British pound, and the Japanese yen, and is re-evaluated and adjusted every five years, and computed daily in terms of equivalent United States dollars. The IMF uses SDRs for its monetary unit of account. SDRs are denoted with the ISO 4217 currency code XDR.
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