Explore BrainMass

Explore BrainMass

    Special Drawing Right

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The Asian Development Bank (ADB), owned by its 67 members whose primary goal is poverty reduction, makes its loans to SDR own a multilateral development bank. As of September 2010, these loans totaled $44.3 billion, with the largest borrowers being China, Indonesia, India, Pakistan, and the Phillipines. The ADb covers the exposure of its capital resources, $114.8 billion, by selling into the forward market the currencies that make up the SDR basket. Why would the ADB hold SDR instead of dollars or euro? What are the currency amounts that make up the SDR? To learn more about the SDR basket, visit http://imf.org/external/np/fin/data/rms_sdrv.aspc

    © BrainMass Inc. brainmass.com October 10, 2019, 7:26 am ad1c9bdddf

    Solution Preview

    ADB and Special Drawing Right
    Special Drawing Right (SDR) is an international reserve currency which was created by IMF in late 1960s to curb the rise of US Dollar as the key international currency. It is common for countries to accumulate foreign currency when they do not want to appreciate their currency or change monetary policies in time of trade surpluses and foreign financial inflows. This foreign currency provides them with buffer in case of unexpected trade downfalls and financial outflows. In the absence of foreign currencies, countries would be forced to depreciate their currencies or tighten their monetary policies. However these abrupt changes can hamper country's growth. With major holdings in US Dollar, the countries felt threatened by devaluation of dollar which would change their economic position with foreign ...

    Solution Summary

    Usage of SDR by ADB instead of holding dollar or euro