The World Bank was formally established on December 27, 1945, following the ratification of the Breton Woods

agreement. The concept was originally conceived in July 1944 at the United Nations Monetary and Financial Conference. Two years later, the Bank issued its first, and largest, loan: $250 million to France for post-war reconstruction; an issue which has remained a primary focus, alongside reconstruction after natural disasters, humanitarian emergencies and post-conflict rehabilitation needs affecting developing and transition economies. The World Bank is one of the three Breton Wood Institutions which were created in 1944 to rebuild the destroyed Europe after World War II. Later, after the economic revival of Europe, the World Bank's activities became focused on developing countries. By financing infrastructure projects, poverty should be reduced. Today the focus is on the achievement of the Millennium Development Goals (MDGs), goals calling for the elimination of poverty and the implementation of sustainable development. The constituent parts of the Bank, the IBRD and the IDA, achieve their aims through the provision of low or no interest loans and grants to countries with little or no access to international credit markets. The Bank is a market based non-profit organization, using its high credit rating to make up for the low interest rate of loans. The Bank's mission is to aid developing countries and their inhabitants achieve the MDGs, through the alleviation of poverty, by developing an environment for investment, jobs and sustainable growth, thus promoting economical growth and through investment in and empowerment of the poor to enable them to participate in development. The World Bank sees the five key factors necessary for economic growth and the creation of a business environment as: 1. Capacity Building - Strengthening governments and educating government officials. 2. Infrastructure creation - implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts. 3. Development of Financial Systems - the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures. 4. Combating corruption - Eradicating corruption to ensure optimal effect of actions. 5. Research, Consultancy & Training - World Bank Provide platform for research on development issues, consultancy and conduct training programs (web based, on line, video/tele conferencing and class room based open for those who are interested from academia, students, government & NGO officers etc. The Bank obtains funding for its operations primarily through the IBRD's sale of AAA-rated bonds in the world's financial markets. Although this does generate some profit, the majority of the IBRD's income is generated from lending its own capital. The IDA obtains the majority of its

funds from forty donor countries who replenish the bank's funds every three years, and from loan repayments, which then become available for re-lending. The Bank offers two basic types of loans; investment loans and development policy loans. The former are made for the support of economic and social development projects, whereas the latter provide quick disbursing finance to support countries' policy and institutional reforms Although the IBRD provides loans with a low interest rate (between 0.5-1% for a standard Bank loan), the IDA's loans are interest free. The project proposals of borrowers are evaluated for their economical, financial, social and environmental aspects to ensure that they are viable before any amount of money is distributed. The Bank also distributes grants for the facilitation of development projects through the encouragement of innovation, cooperation between organizations and the participation of local stakeholders in projects. IDA grants are predominantly used for: Debt burden relief in the most indebted and poverty struck countries Amelioration of sanitation and water supply Support of vaccination and immunization programs for the reduction of communicable diseases such as malaria combating the HIV/AIDS pandemic Support civil society organizations Creating initiatives for the reduction of greenhouse gases The Bank not only provides financial support to its member states, but also analytical and advisory services to facilitate the implementation of the lasting economic and social improvements that are needed in many underdeveloped countries, as well as educating members with the knowledge necessary to resolve their development problems while promoting economic growth. For the poorest developing countries in the world the Bank's assistance plans are based on Poverty Reduction Strategies; by combining a cross-section of local groups with an extensive analysis of the country's financial and economical situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country's priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly. Some critics of the World Bank believe that the institution was not started in order to reduce poverty but rather to support US business interests, and that the bank has actually increased poverty and been detrimental to the environment, public health, and cultural diversity. Others point out that the World Bank has consistently pushed a neo-liberal agenda, imposing policies on developing countries which have been damaging, destructive and anti-developmental. It has also been suggested that the World Bank is an instrument for the promotion of US and

'Western' interests in certain regions of the world and seven South American nations have established a "Bank of the South" in order to minimize US influence in the region. But all said, the work done by World Bank in helping various nations can never be undermined. The International Bank for Reconstruction and Development (I B R D) was established in 1945 under Bretton woods Agreement of 1944 to assist in bringing about a smooth transition from a war time to peace time economy. It is a sister institution of the IMF.

Functions of I. B. R. D: Following are main functions of I. B. R. D. 1. To assist in the reconstructions and development of territories of its member countries by facilitating the investment of capital for productive purpose and the development of productive facilities and resources in less developed countries. 2. To promote private foreign investment by means of guarantees or participations in loans and other investment made by private investors and when capital is not available on reasonable terms to supplement private investment by providing finance for productive purpose out of its own resources or from borrowed funds. 3. To arrange the loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent small and large projects are dealt with first. 4. To promote the long ranged balanced growth of international trade and maintenance of equilibrium in the balance of payments of member countries by encouraging international investment for the development of their productive resources there by assisting in raising productivity, the standard of living and conditions of workers in their territories. Organisation of I. B. R. D: Like the IMF, the I B R D has a three tier structure with a President, Executive Directors and Board of Governors. Number of Executive Directors is 21 of these 5 are appointed by five largest share holders of the World Bank. They are US, UK, Germany, France and Japan. The remaining 16 are elected by the Board of Governors. There are also Alternate Directors. The first five belong to the same permanent member countries to which the Executive Directors belong. But the remaining Alternate Directors elected from among the group of countries who cast their votes to choose the 16 Executive Directors belonging to their regions. The President of the World Bank presides over the meetings of the Board of Executive Directors. The Executive Directors decide about policy within the frame work of the Articles of Agreement. They consider and decide on the loans and credit proposals made by the president. The President has a stag of more than 6000 persons who carry on the working of the World Bank.

Funding Strategy of IBRD: The IBRDs funding strategy has the following four objectives. The first is to ensure the availability of funds to the Bank. For this purpose the IBRD seeks to maintain unlimited access to funds in the markets in which it borrows. The second objective is to minimise the effective cost of those funds to its borrowers. This is done through the currency mix of its borrowings and the line of borrowings. In the former case, it tends to maximise borrowings in currencies with low nominal interest rates. The time of borrowings is manipulated in two ways (a) when interest rates are expected to rise, the Bank seeks to increase its borrowings and (b) when interest rates are expected to fall, and it seeks before borrowings. The third objective is to control volatility in net income and over all loan charges. For this purpose the Bank a pool based variable lending rate system that uniformly adjusts interest charges applicable to the outstanding balance on all loans made under it. The existing loans were not affected by this lending system. When the majority of loans and borrowings are incorporated into the new lending rate system in future, the volatility of interest rates will be much reduced. The fourth objective of funding strategy is to provide an appropriate degree of maturity transformation between its borrowing and lending. Maturity transformation refers to the Banks capacity to lend at longer maturities than it borrows. At the same time, it provides its borrowers with a modest degree of maturity transformation. Borrowing and Lending Activities: The IBRD is a corporate institution whose capital is subscribed by its members. It finances its lending operations primarily from its own medium and long term borrowings in the international capital markets and currency swap agreements (CSA). The bank also borrows under the Discount Note Programme. First it places bonds and notes directly with its member governments, government agencies and central bank. Second it offers issues to investors and in the public markets through investing banking firms, merchant banks and commercial banks. The IBRD has evolved two new borrowing instruments first, Central Bank Facility (CBF) and second borrowing in Floating Rate Notes (FRNs). CBF is one year, US dollar dominated facility for borrowing from official sources particularly central banks. FRNs are meant to help the IBRD to meet some of the objectives of its funding strategy. The FRN market enables the Bank to gain access to set of investors like commercial banks and certain other financial institutions which have not traditionally bought IBRD notes. The Bank lends to member countries in any of the following ways. (i) By marketing or participating in loans, out of its own funds (ii) by marketing or participating in direct loans out of funds raised in the market of a member or otherwise borrowed by the Bank. (iii) By guaranteeing in whole or in part loans made by private investors through the usual investment channels. The Bank provides the following facilities to member countries.

(a) Structural Adjustment Facility (SAF): The IBRD has introduced SAF since 1985 to borrowing countries in order to reduce their balance of payments deficit while maintaining or regaining their economic growth. SAF funds are used to finance general imports with a few agreed exceptions such as luxury and military imports. (b) Enhanced Structural Adjustment Facility (ESAF): In 1987 the Bank has set up the ESAF to increase the availability of concessional resources to low-income member countries. It provides new concessional resources totalling SDR 6 billion which will be financed by special loans and contribution from developed and OPEC countries. Like SAF, ESAF is meant to help the borrowing countries to reduce their balance of payments deficits and encourage growth. (c) Special Action Programme (SAP): The Special Action Programme (SAP) has been started in 1983 to strengthen the IBRDs ability to assist member countries in adjusting to the current economic environment. It has four major elements (i) an expansion in lending for high-priority operations that support structural adjustment, policy changes maintenance of crucial infrastructure. (ii) Accelerated disbursement under existing and new investment commitments to ensure timely implementation of high priority projects (iii) Expanded advisory services on the design and implementation of appropriate policies. (iv) Existing familiar efforts by other donors for fast disbursing assistance in support of programmes of Banks and IMF.

IMF, its Structure, Functions, Objectives Resources and Performance

IMF came into being on December 27, 1945 when 29 countries of the world signed on Articles of Agreement. It started functioning in March 1947. Structure of IMF: The Board of Governors is the supreme body of IMF, which is headed by a Governor and an alternate Governor who are appointed by the members of the Fund. The board of Governors deals with the entry of new members, determination of quotas and distribution of SDRs. Board of Governors consists of one Governor from each of its 184 members. 24 of the Governors sit on International Monetary and financial committee and meet twice a year. There is an annual meeting of the Fund which is held once in a year all members participate in it. The other big authority in the IMF is Executive Board. It has a Managing Director who is the Chairman of the executive board and controls day-to-day matters of the Fund. IMF has two committees:

(1) Interim Committee now replaced by IM FC, (2) Development Committee. The Interim Committee deals with international liquidity and world monetary arrangements. Moreover this committee analyses the amendments of the Articles of the Agreement. Where as the development committee suggests those measures where by the real resources could be transferred to the developing countries. Till the end of 2003 the total staffs of IMF was 2800 which was from 141 countries. The Fund has its headquarters at Washington with its offices at Paris and Genera. Objectives of the IMF: In the first article of the Funds Charter there have been described the six objectives of IMF. They are as: 1. To increase international cooperation by providing consultancy services regarding international monetary issues. 2. To assist in the balanced growth of world trade, which will be helpful in raising the efficiency, employment and income of the world. 3. To Stabilize the exchange rate and discourage the tendency of competitive devaluation. 4. To abolish those restrictions which are obstacles in the way of World Trade and create a multilateral system of payments. 5. The countries facing deficit in their balance of payments can borrow from IMF to finance temporarily. 6. To reduce the volume and time period of disequilibrium (deficit) in balance of payments. Functions of IMF: Following are some functions performed by IMF. 1. Exchange Arrangements: As a result of 2nd amendment in Articles each country can opt for any one of the following in connection with exchange rate. (1) A country can represent the value of its currency in terms of any other currency like dollar. (2) The par value of a currency can be represented in SDRs. (3) The exchange rate can be expressed in terms of some currency composite. (4) No country is allowed to represent its currency in terms of gold.

(5) The members can make such arrangements where they can show the par value in terms of the currencies. Accordingly, in 1985, the arrangements regarding exchange rate determination, the 32 countries had fixed exchange rate in terms of dollar, there are 14 countries whose value is fixed in terms of Franc. There 12 countries who show their value in terms of SDRs where as the large number of countries are on Managed Floating exchange rate system. 2. Surveillance: It is the responsibility of the Fund to see whether the members are serious regarding their functions, whether they get guidance from Fund regarding exchange rate policies. In respect of conduct of exchange rate policies fund has approved three principles (1) A member in order to get undue benefit will not prefer any other member (2) For the sake of abolition of destabilizing forces in exchange rate govt. should interfere in foreign exchange market (3) Regarding such intervention is should be kept in view that the interests of the other countries be not affected. Thus under this function there is regular dialogue and policy advice which IMF offers to each member. Hence IMF makes an appraisal of each members economy. 3. Exchange Restrictions: In the light of Article VIII of the Fund, no country can put any type of restrictions on the payments regarding Current Account. However a country can impose restrictions on the movement regarding capital amount. Again no country can impose restrictions that the transactions will be made in certain currencies. 4. Consultation and Technical Assistance: For the sake of effective performance of its functions fund must be having the information regarding the economic policies and economic conditions of its member countries. This will be possible if the fund and the members are linked to each other. In 1984, 118 countries completed their talks with fund under Article IV. Again the Fund provides technical assistance to its members regarding strengthening their capacity to design and implement effective policies. Fund assists in the areas of fiscal policy, monetary policy, exchange rate, banking and financial system etc. 5. Lending For BOP Difficulties: Basically Fund is aimed to provide financial assistance to those member countries which suffer from BOP difficulties. But to the poor countries, it also assists in the attainment of growth and alleviation of poverty. Resources of the IMF:

The main source of the Fund is those subscriptions which are paid by the members in form of quotas. We also know that each country has to pay 75% of its quotas in terms of the domestic currency and 25% in terms of SDRs. In 8th General Review which was promulgated in November, 1983, it was decided that 25% of quota can be paid in those currencies which are allowed by the Fund instead of SDRs. The New Arrangement to Borrow (NAB) introduced in 1997 with 25 participating countries and institutions. Under the GAB and NAB the IMF has upto SDRs 34 billion or $46 billion available to borrow. In order to enhance its resources, the Fund can borrow from the official as well as unofficial sources. Fund obtained its first loan in 1962 under General Arrangements to Borrow (GAB). In 1983 the GAB has been extended Accordingly under GAB Fund has borrowed from US Deutsche Bunds Bank, Japan, Saudi Arabia, France, Belgium, Holland, Italy, Canada and Swiss National Bank. Against such loans the Fund pays as much interest as it gets against the use of SDRs. Fund gets three types of charges against the use of resources. 1. Each country has to pay 0.5% as service charges. 2. The agreement free is 25% per annum. 3. The borrowing country has to pay 7% as interest charges. However they very from facility to facility. Performance of IMF: We know that IMF was setup in 194 and has completed, its 60 years in 2004. Therefore we see how far the IMF has been successful in attaining its objectives. The role of IMF is discussed below. 1. IMF has been much more of value for developed countries. It not only plays an important role in the determination of exchange rate, but IMF arrangement provided the opportunities to European industrial countries to follow macro-economic management policies in better way. They followed the realistic exchange rates. They reduced the restrictions over world trade and foreign exchange, and depended upon monetary policy for economic stability. As a result not only their deficits decreased, but the inflation was also controlled. All this means that IMF helped in attaining both internal and external balances. 2. In 1960 IMF brought two big changes in operation. To increase its resources to finance the deficit countries it introduced GAB where by the IMF could be able to borrow from 10 big industrial countries. Secondly because of shortage of worlds liquidity in was authorized to issue SDRs.

3. During 1960s IMF paid special attention on the under-developed countries. It introduced two facilities like CFF and BSF with aim of assisting those poor countries which faced fall in their export earnings. 4. During 1970s, because of oil price like under-developed countries had to face soaring deficits. Moreover the world has to see melodrama of inflation and unemployment. In such circumstances, there was fear that rate of exchange will face big fluctuations and there will be big devaluation like 1940s. In order to compensate the oil affected countries IMF introduced for oil Facility and 2nd oil Facility. In 1976, IMF set up TF, while in 1977 it formed SFF. 5. In 1986 and 1987 the Structural Adjustment Facility (ESAF) were introduced. Under these facilities, IMF helps those countries which are engaged in removing price distortions, maintaining real exchange rate and enhancing productive capacity. The purpose of such all reforms is to create a suitable environment for economic development. The above facilities have been renewed in 1944 with the aim of providing loans to developing countries at the concessionary rates so that they could initiate medium term programme of macro-economic stability. 6. In 1933 IMF initiated Temporary Systematic Transformation Facility for the assistance of former states of Soviet Union. As a result of such facility, the Central Asian States will be assisted which are transferring themselves from command economies to market-economics. Moreover IMF is providing training facilities to the staff of these states so that they could train themselves for a better macro economic management. 7. During 1977-98 Asian Financial Crisis, Fund pledged $21 billion to assist Korean to reform economy, restructure its financial and corporate sectors and recover from recession. 8. In the year 2000 IMF approved an additional sum of $52 million loan for Kenya to cope with sever effects of drought und PRGF

United Nations Conference on Trade and Development (UNCTAD), its Aims and Objectives

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 following the growing dissatisfaction with the operation of such international institutions as the IMF and GATT. These institutions favoured the developed countries and failed to tackle the special trade and development problem of the less developed countries. The UNCTAD expected to perform the following functions as laid down by the UN General Assembly. 1. To promote international trade between countries with different socio-economic systems, especially for accelerating the economic development of less developed countries. 2. To formulate principle and policies of international trade and related problems of economic development. 3. To make proposals for putting the social principles and policies into effect and to take such other steps this may be relevant towards the end. 4. Generally, to review and facilitate the coordination of activities other institutions with in the UN system in filed of international trade and related problems of economic development. 5. To be available as a centre for harmonious trade related development policies of governments and regional economic groupings. Objectives and Achievements of UNCTAD: UNCTAD is supposed to fulfil the following objectives which have been evolved gradually of the various conferences: (1) Trade in primary commodities (2) Trade in manufactured goods (3) Development financing (4) Technology transfer (5) Economic cooperation among developing countries. We discuss below the extent to which UNCTAD has been successful in achieving these objectives. 1. Trade in Primary Commodities: The UNCTAD has been in international commodity arrangements since its inception. Less developed countries want to expand, the market for their traditional exports of primary commodities. Developed countries place restrictions on the exports of the latter in such forms as licensing, quotas, tarrifs, health and packaging regulations etc and provide subsidies to domestic producers. Such trade restrictions tend to be higher for processed

products than for unprocessed. Besides, exports from less developed countries have been subject to wide fluctuations. Consequently there has been continued deterioration in the terms of trade of primary products of the less developed countries in relation to the export of manufactured products from the developed countries. Since UNCTAD II, the less developed countries have been insisting on International Commodity Arrangement (ICA) to stabilise the prices and market for their exports of primary products. The agreements seek: (1) to stabilise the price of the commodity concerned so as to reduce price fluctuations and the resulting stability in the economies of the less developed countries. (2) To increase its price to compensate for past worsening the terms of trade of less developed countries. All UNCTAD IV in 1976 it was proposed to have an Integrated Programme for commodities (IPC) and to create a common fund for buffer stock financing. The proposal was to negotiate international commodity agreements to stabilize the prices of 18 commodities, ten of which were to be included in the initial buffer stock scheme. This programme led to the international commodity agreements on only cocoa (1981) and rubber (1980). UNCTAD VI in 1983 also emphasised the importance of negotiating ICA for ten commodities of the five agreements on commodities-coffee, cocoa, sugar, tin and rubber only that for rubber is still in operation. UNCTAD VII has a subsidiary committee on commodities and the UNCTAD VIII setup standing Committee on Commodities for making recommendations to TDB. The UNCTAD proposed for a $6 billion Common Fund in 1976 to create and finance international buffer stock of ten storable commodities. It was at UNCTAD VII that the Common Fund for commodities under the ICP became operational after number of countries ratified it or expressed their intensions to do so. New pledge announced at UNCTAD VII raised its total pledged capital to 66.9 percent of the $4.7 billion fund allowing it to become operational. 2. Trade in Manufactured Goods (GSP): Less developed countries have strongly urged the developed countries to give them tarrif preferences on their manufactured and semi manufactured goods. A UNCTAD I the G-77 urged the developed countries to grant a Generalised System of Preferences (GSP) to the export of such good to the developed countries. It was at UNCTAD II in 1968 that all members unanimously agreed for the early establishment of a mutually acceptable system of generalised, non-reciprocal and non-discriminatory preferences. The objectives specified for GSP were (a) to increase the export earnings of less developed countries (b) to promote their industrialisation and (c) to accelerate their growth rate. Under the GSP, most manufactured and semi-manufactured goods from less developed countries to developed countries enjoy tarrif reductions or exemptions from custom duties. A majority of developed countries grant duty free treatment for all or most products eligible for GSP. The US, Sweden, Norway and Finland give completely duty free treatment under their GSP schemes. Japan and Switzerland allow generally duty free treatment with varying rates of duty up to 50 percent lower than under MIN for individual products from less developed countries. The EEC also gives duty free treatment for al industrial products eligible for GSP.

During 1970s constant efforts were made to expand the coverage of the GSP. But in the wake of global recession, rising protectionism and other obstacles in the way of increased access to international markets, the less developed countries experienced as severe set back in their exports of manufactured and semi-manufactured products during 1980-82. Again in 1983-84 slower growth in developed countries and in world trade reduced the growth rate of exports of less developed countries due to fall in international commodity prices. However there has been a moderate recovery in export prices of manufacturers of less developed countries since 1985. 3. Development Finance: Right from the UNCTAD III less developed countries have been voicing their concern over the growing problems of their balance of payments deficits and indebtedness. The UNCTAD II held at Santiago in May 1972 passed a resolution asking the IMF to work out a scheme for the link-up of Special Drawing Rights (SDR) with development finance. This was essential because the SDRs had been linked with individual members quotas in IMF. Since the quotas of less developed countries were small they received very small share of SDRs. The UNCTAD III was also called upon to provide for close examination and to recommend appropriate remedial measures. The UNCTAD IV held in May 1976 also failed to solve the debt and development finance problem of less developed countries. It passed three resolutions in this connection. The first deals with the debt problem of less developed countries and asked the developed countries to convert DDA debt into grants and establish a frame work within which future debt problem could be solved. The second related to an effective system of international financial cooperation which suggested a number of measures to improve the working of the IMF in relation to less developed countries. The third resolution concerned the establishment of multilateral guarantee facility. The UNCTAD V held at Manila In 1979 passed a number of resolutions concerned with finance and debt problems of less developed countries. It asked the IMF to examine the over all size of its quotas in relation to the magnitude of world trade and balance of payments deficits of its members and to increase the quota of less developed countries. The UNCTAD VI held in 1983 and UNCTAD VII held in 1987 relating to development finance, debt rescheduling conversion of loans into grants of the less developed countries. UNCTAD VIII held in 1992 had on its agenda resources for development. It appointed adhoc working groups to deal with investment and capital flows, non-debt creating finance for development and new mechanism for increasing investment and financial flows to developing countries. 4. Technology Transfer: It was at the UNCTAD at Nairobi in 1976 that the resolution was passed for measures which would strengthen the technological capability of less developed countries. It was pointed out that better research facilities, training programmes and establishment of local and regional centres for technology transfer would serve the purpose.

The UNCTAD VI emphasised upon the need for transfer of technology to developing countries in order to promote their speedy and self reliant development. Policy formulation related with the transfer and development of technology varies from country to country. Therefore an international code of conduct on the transfer of technology has been under negotiation in UNCTAD. The code of conduct will provide important elements for the design and development of national policies for technology transfer. The UNCTAD has simply laid down the broad principles for transfer of publicly funded technologies at the inter-governmental level. It may facilitate the process of technology transfer by freer access to sources of information cutting down barriers to freer flow of technology etc. 5. Economic Co-operation among Developing Countries: UNCTAD II held at New Delhi in 1968 emphasised for the first time the need for promoting international cooperation and self reliance among the developing countries. UNCTAD VI held at Belgrade in 1983 again emphasised the need for cooperative efforts among less developed countries through widening the scope of preferential trading arrangements harmonizing industrial development programmes through infrastructural facilities particularly in respect of shipping services and simple payment mechanism under common clearing system. The first step towards economic cooperation among developing countries was taken at the ministerial meeting of G-77 held at New York in October 1982 when it decided to launch Global System of Tarrif preference (GSTP). UNCTAD VII also stressed other importance of economic cooperation. UNCTAD VIII which setup new Standing Committee on Economic Cooperation among developing countries to study and report on all facts of cooperation toe the TDB. UNCTAD is a form where developing countries can meet, discuss and formulate plans for regional economic

WTO, its Structure and Objectives

In 1944 IBRD, IMF and ITO were setup, but practically ITO could not come into being. Accordingly, the 23 countries of the world made an agreement to form GATT with the view of reducing the external tarrif rates. These countries comprised US, UK, India and Pakistan etc. GATT was aimed at liberalizing world trade by removing all trade barriers. But it could not do all what was required to replace this trading institution, it was decided to set up World Trade Organization (WTO) in 1994 in a meeting held at Rabat (Morocco). Structure of WTO: The WTOs tap decision making body is the Ministerial Conference, which meets at least once every two years. This body have had its conferences at Montreal (Canada) and Cancun (Mexico) like places, as its 5th conference was held in Cancun from10 to 14 September, 2003. Below this, is the General Council, normally ambassadors and heads of delegation in Geneva represent their countries, some time officials sent from members capital also represent their countries. This council meets several times a year in Geneva where there is read quarter of WTO. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property Council (TRIPS) report to the General Council. Moreover there are numerous specialized committees, working groups and working parties which deal with the individual agreements and other areas like environment, development, membership applications and regional trade agreements. Thus WTO serves as a forum for the member of trade issues. In this way the WTO is engaged in devising a Multi-lateral Trading System. Objectives of WTO: Following are the main objectives of WTO. 1. To increase the world trade by removing and reducing all the impediments like tarrifs, quotas, VERs and subsidies etc. Liberalization of trade will ensure the smooth, predictable and unrestricted, flow of trade between nations of the world. The free and open trading system will result in providing security to consumers and producers of the world regarding greater supplies and greater choice of the finished goods, components, raw materials and services. 2. The removal of trade barriers following WTO trading system, the other barriers social, political, legal, linguistic, cultural and socio-economic will also be eradicated. It means WTO will pave out the way for Globalization and harmonization amongst people of the world.

3. The WTO is a move towards free trading system. Accordingly, it will lead to better allocation of resources, improvement in factor efficiency and attainment of all the benefits which are associated with trade creation. Main Areas of Working: The WTO negotiates different agreements between its members. After having been signed over these agreements, they are ratified by their parliaments. These agreements are the legal ground rules for international commerce. These contracts guarantee member countries regarding different trade rights. They also bind governments to keep their trade policies with in agreed limits to every bodys benefits. Virtually all decisions in the WTO are taken by consensus among all member countries. However trade friction is channelled into the WTOs dispute settlement process where the focus is on interpreting agreements and commitments. All agreements of WTO have to be accepted by its members. Up till now the WTO has made 15 to 20 agreements. GATT was mostly concerned with trading of goods. Where as WTO in addition to goods has also made agreements over agricultural services, particularly it has seriously taken up the case of trade related Intellectual Property Rights (TRIPs). It has also made agreements on Trade Related Investment Measures (TRIMs) and Agreement on Agriculture (AOA). The WTO has also made detail clarification regarding different Articles of GATT on Anti-Dumping, Safe-Guards and copy Rights.

Balance of Payments Theory of Foreign Exchange Rates

According to this theory, under free exchange rates, the exchange rate of the currency of a country depends upon its balance of payments. A favourable balance of payments raises the exchange rate, while an unfavourable balance of payments reduces the exchange rate. Thus the theory implies that the exchange rate is determined by the demand for and the supply of foreign exchange. The demand for foreign exchange arises, from the debit side of the balance of payments. It is equal to the value of payments made to the foreign country for goods and services purchased from it plus loans and investments made abroad. The supply of foreign exchange arises from credit side of the balance of payments. It equal all payments made by the foreign country to our country for goods and services purchased from us plus loan disbursed and investments made in this country. The balance of payment balances if debits and credits are equal. If debits exceed credits, the balance of payments is unfavourable. On the contrary, if credits exceed debits, it is favourable. When the balance of payment is unfavourable, it means that the demand for foreign currency is more than its supply. Thus causes the external value of the domestic currency to fall in relation to the foreign currency. Consequently the exchange rate falls. On the other hand, in case the balance of payments is favourable the demand for foreign currency is less than its supply at given exchange rate. This cause the external value of domestic currency to rise in relation to the foreign currency. Consequently the exchange rate rises. When the exchange rate falls below the equilibrium exchange rate in a situation of adverse balance of payments, exports increase and the adverse balance of payments is eliminated, and the equilibrium exchange rate is re-established. On the other hand when under a favourable balance of payments situation, the exchange rate rises above the equilibrium exchange rate, exports decline, the favourable balance of payments disappears and the equilibrium exchange rate is reestablished. Thus at any point in time the rate of exchange is determined by the demand for and supply of foreign exchange as represented by the debit and credit side of balance of payments. Any change in the conditions of demand or of supply reflects itself in a change in the exchange rate and at the ruling rate the balance of payments balances from day to day or from moment to moment. DD is the demand curve for foreign currency. It slopes downward to the left because when the rate of exchange rises, the demand for foreign currency falls and vice versa. SS is the supply curve of foreign exchange which slopes upward from left to right. This is because when the exchange rate falls, the amount of foreign currency offered for sale will be less and vice versa.

The two curves intersect at E. Where OR equilibrium exchange rate is determined. At this rate the quantity of foreign exchange demanded and, supplied equals OQ. E is also the point where the balance of payments is an equilibrium. Any exchange rate above or below OR will mean disequilibrium in the balance of payments. Suppose the exchange rate rises to OR1. The demand for foreign exchange R1A is less than its supply R1B. It means that there is favourable balance of payments. When the exchange rate is more than the equilibrium rate, exports decline and imports increase. Consequently the demand for foreign exchange will rise and the supply will fall. Ultimately the equilibrium exchange rate OR will be restored where demand and supply of foreign exchange equals at point E. In the opposite case when the exchange rate falls below the equilibrium rate to OR2 the demand for foreign exchange R2H is greater than its supply R2G. It implies an unfavourable balance of payments. But fall in the exchange rate leads to increase in exports and decline in imports. As a result the demand for foreign currency starts falling and supply, starts rising till the equilibrium exchange rate OR is re-established with the quantity of demand and supply of foreign exchange at point E. Criticism: The balance of payments theory has been criticised by economists on the following grounds. 1. The main defect of the theory is that the balance of payments is independent of the exchange rate. In other words, the theory states that the balance of payments determines the exchange rate. This is not wholly true because it is change in the exchange rate that being about equilibrium in the balance of payments. 2. Another defect of the theory is that it neglects the role of the price level in influencing the balance of payments of a country and hence its exchange rate. But the fact is that price changes do affect the balance of payments and the exchange rates between countries. 3. The theory is based on assumption of free trade. This is unrealistic because free trade is not practised these days. Governments impose number to encourage exports. This is how they try to correct disequilibrium in the balance of payments. 4. The theory pre-supposes that there is an equilibrium exchange rate where balance of payments balances. This is a truism. But the equilibrium exchange rate may not be one of balance of payments equilibrium. Infact exchange rates between countries continue to prevail under conditions of surplus or deficit in the balance of payments to be in equilibrium over the long run. Despite these criticisms the balance of payments theory is the most satisfactory explanation of the determination of exchange rate.