Financial Institutions MGMT 1035

What were the two major accomplishments of the Bretton Woods Conference?

The creation of the International Monetary Fund (IMF) and the World Bank (International Bank for Reconstruction and Development, IBRD)

What was the purpose of the IMF at its founding?

To stabilize exchange rates, support countries with balance-of-payments crises, and promote monetary cooperation

What role does the World Bank play?

Provides loans for infrastructure, reconstruction, and development projects in member states

What was the Bretton Woods currency system?

A system where currencies were pegged to the U.S. dollar, which was in turn pegged to gold

Why did the Bretton Woods system collapse in the 1970s?

The U.S. could no longer back dollars in circulation with gold, leading Nixon to suspend convertibility

What is the core mission of the IMF today?

Promoting financial stability, encouraging trade and growth, and preventing policies harmful to global prosperity

What type of assistance does the IMF provide?

Financial loans for balance-of-payments problems, policy advice, and technical assistance to strengthen institutions

What are Special Drawing Rights (SDRs)?

IMF-issued international reserve assets that supplement member countries’ reserves

What did the General Agreement on Tariffs and Trade (GATT) do?

Reduced tariffs, established non-discrimination (MFN principle), and provided a forum for resolving trade disputes

What was the Uruguay Round’s main achievement?

Creation of the World Trade Organization (WTO) and expansion of trade rules to services and intellectual property

What is the WTO’s purpose?

To administer trade agreements, provide a forum for negotiations, settle disputes, and promote freer trade

What does “most-favored nation” (MFN) status mean in trade?

Countries must apply the same favorable trading terms to all WTO members, not just selected partners

What is the role of tariffs in trade?

Tariffs are taxes on imports meant to protect domestic industries but usually increase consumer prices

What is a unilateral trade agreement?

A one-sided arrangement where one country sets trade conditions without reciprocity

What is a bilateral trade agreement?

A trade agreement between two countries, generally mutually beneficial

What is a multilateral trade agreement?

Agreements among multiple countries to reduce barriers and standardize trade rules (e.g., WTO, USMCA, EU)

What was NAFTA?

A free trade agreement between the U.S., Canada, and Mexico eliminating most tariffs and boosting integration

What replaced NAFTA?

The United States-Mexico-Canada Agreement (USMCA), updated with stronger labor and environmental standards

What were NAFTA’s pros?

Tripled regional trade, boosted cross-border investment, and lowered consumer prices

What were NAFTA’s cons?

Job losses in U.S. manufacturing, wage pressures, and outsourcing to Mexico

What is the CPTPP?

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a major Indo-Pacific free trade bloc

What benefits does the CPTPP offer members?

Reduced tariffs, expanded market access, and cooperation on regulations and standards

Why did the UK want to join the CPTPP?

To boost trade opportunities post-Brexit and integrate into Indo-Pacific growth markets

What is China’s relationship with the WTO?

Joined in 2001 after long negotiations, but tensions remain due to its state-led economic model

Why is China’s WTO membership controversial?

Western countries argue China has not fully embraced liberal market principles, leading to trade frictions

What is the “China shock”?

The disruptive impact of China’s WTO-driven export growth on Western manufacturing jobs

How do institutions like the WTO differ from unilateral trade actions?

WTO enforces multilateral rules, while unilateral actions (like tariffs) risk trade wars and retaliation

What is the significance of institutions like IMF, World Bank, and WTO?

They stabilize the global economy, provide financial support, and set rules for trade

What is the main critique of “hyper-globalization”?

That it undermines domestic sovereignty, fuels inequality, and sparks populist backlash

What is a positive-sum trade outcome?

When all participating countries benefit from trade agreements, as opposed to zero-sum competition

Why are rules-based systems important in trade?

They prevent larger economies from exploiting smaller ones and ensure fairer competition

What role did tariffs play in the Great Depression?

Protectionist tariffs worsened the global downturn by reducing international trade

How do trade agreements affect consumers?

They generally lower prices, increase variety, and improve quality of goods and services

What is the purpose of dispute resolution in trade agreements?

To provide a structured way to handle conflicts without resorting to retaliation or trade wars

Why is the WTO considered more powerful than GATT?

It has legal status, broader coverage (services, IP), and stronger enforcement mechanisms

What is economic nationalism in trade?

Policies prioritizing domestic industries at the expense of international cooperation

How does the IMF promote stability during crises?

By offering emergency loans, policy guidance, and debt restructuring

What is a regional trade agreement?

A pact between geographically close nations to reduce trade barriers and integrate markets (e.g., EU, USMCA)

What does “trade liberalization” mean?

Reducing barriers like tariffs and quotas to allow freer flow of goods and services

What is the balance-of-payments problem?

When a country cannot pay for its imports or service its debts, often requiring IMF assistance

Why do countries sometimes impose tariffs despite costs?

To protect domestic industries, safeguard jobs, or pursue political goals

What are safeguards in trade agreements?

Rules that allow temporary protection of industries facing sudden surges of imports

Why is international cooperation essential in trade?

Because global economic problems can spread quickly without coordinated policies

What is the key difference between IMF and World Bank?

IMF focuses on monetary stability and crises, while World Bank funds development projects

What are the main criticisms of the IMF?

That its loan conditions can impose austerity and harm social programs

What is trade protectionism?

Policies like tariffs, quotas, and subsidies that restrict imports to protect domestic producers

What is comparative advantage in trade theory?

The idea that countries benefit by specializing in producing goods where they are most efficient

What is the main function of the WTO dispute settlement body?

To enforce compliance with trade rules and adjudicate conflicts between members

Why is the Bretton Woods system still studied today?

It shaped modern financial institutions and showed the importance of early, large-scale global cooperation