Finance

The financial statements of any company provide quantitative insight of the performance of the company. Although all these figures are very important they do not give a detailed review of the companys overall performance. Therefore, the accounting ratios are used to do a detailed analysis of the performance of the company. For the purpose of analysis of companys performance such accounting ratios are compared with those of prior years or with industry averages.

USES OF RATIOS
Profitability Ratios
The progress of a company can be measured from its profitability. The figures of gross profit and net profit are not very significant unless expressed as a percentage of sales. The relation between gross and net profit can be used to determine how effectively the companys management is controlling its operating costs. Moreover, return on capital employed determines the efficiency and effectiveness of the management in using its available resources. Return on capital employed is helps analyze better when used for comparing a company with industry averages instead of the analysis of a company over a period (www.accaglobal.comarchivessa_oldarticles).

Liquidity Ratios
Liquidity ratios assess the cash flow position of a company. For this purpose current ratio and acid test ratio is used. Current ratio tells how many current assets the company has to deal with its current liabilities and explains how liquid a company is. A higher current or acid test ratio is favorable for a company as the higher the ratio the more funds are available with the company to deal with its debts. However, sometimes a very high ratio may be an indicator of the fact that most of the assets of the company are kept liquid therefore the company is not able to earn the best possible returns (www.accaglobal.comarchivessa_oldarticles).

Financial Ratios
All the current and prospective stakeholders of a company are interested in its financial position. Thedebt equity ratioshows the relationship between the debts of the company and the equity of the company. Theinterest cover ratioshows how much more interest the company pay with the available profit. The lower the interest cover ratio the higher the risk of default by the company. The company may have to face severe consequences if the interest payments and the principal payments are not made on timely basis. Theearnings per shareof a company shows how much profit the company has earned during the accounting period in relation to the number of shares issued to the ordinary share holders. The movement in earnings per share over time is used to analyze the investment potential of a companys shares (Kaplan, 2007).

PROS AND CONS OF RATIOS
Following are some of the benefits than can be derived from the use of accounting ratios.
Simplifyfinancial statementsThey make it easy to understand the financial statements. Although the financial statements give only the numerical aspect of the performance the company the ratios give the detailed insight on such figures.
Facilitate inter-company comparisonThey provide basis for inter-company comparison. Ratios emphasize the factors related to the successful and unsuccessful companies. They also reveal strong companies and weak companies, overvalued and undervalued companies.
Help in forecastingThey help in forecasting therefore, they can assist management, in its basic functions of planning.
Help in investment decisionsThey help the bankers and the investors in making their investment and lending decisions.
Following are some of the limitations of the accounting ratios.

Lack of comparative information Appropriate data is very important for the comparison and detailed analysis. Non availability of required data for comparison with similar company in the industry or with prior years performance of the same company will adversely affect the analysis
Limitations of historical cost accounting The financial statements on the basis of which ratios are calculated are prepared by using historical cost accounting. Therefore factors like inflation, impact of global recession and other similar factors may affect intercompany and over the period comparisons.
Dependency on financial information Ratio analysis may build a good or bad image of the company. The quality of the ratio analysis depends on the accuracy of the data on the basis of which ratios are calculated. If the accounts are poorly prepared, e.g., poor accounting policy or poor estimates of the management, then the conclusions drawn from the accounting ratios may be misleading
Comparison with past performance Past performance of a company may not always be the best basis for the analysis of the companys current and future performance. In fact, when the financial statements of a company become available for analysis they had already been out dated by few months due to the time taken for their preparation (Financial Ratio accounting for managment).

Accounting ratios are one of the key tools used by the stake holders of any company for interpreting its financial statements. However, care must be taken in drawing any conclusions a change or difference in a ratio may be an indicator of various factors and not necessarily of the companys good or bad performance.

Corporate finance helps provide the managers with the skills and knowledge required to identify and analyze the corporate strategies and options possible. The managers can analyze and study how a strategy or a project pr process can help increase value of the firm. They can also run cost benefit analysis, net present value etc of future ventures to understand their suitability in the business. The funding requirement and capital structure of firms can be reviewed and understood, and future funding strategies can also be formulated with the help of knowledge of corporate finance. So the overall functionality and profitability of the company can be better understood with such skills and knowledge.
b. Describe the organizational forms a company might have as it evolves from a start- up to a major corporation. List the advantages and disadvantages of each form.
An organization may undergo various stages in the business life cycle as it grows and expands. A business could start as a start up proprietorship. This form has three advantages, these are the organization can be formed with ease and in an inexpensive manner. The government regulations subjected to this form are also lower, also they are not subjected to corporate taxes, but only personal taxes applied to the owner. The disadvantages of this form also exist though, and those are the capital required for growth and expansion may be difficult to obtain, the liability for the proprietor is unlimited, and once the owner dies the proprietorship life may also be over.
The next form of business may be partnership, where two or more people run a business. A partnership agreement would entail all the details of the terms and conditions, partnership ratio, ownership ratio etc. the advantages and disadvantages of this form are much alike that of a proprietary business. In case of liability both the partners are liable for the debts. However to limit the liability a partner may chose to opt for limited partnership, but this would mean that these partners would have lesser controls than the general ones.
Due to the constraint in capital, it is found that organizations turn into corporations to move ahead and grow further. A corporation is an entity formed by state law and which has distinct existence. So there are three major advantages of this form firstly the life of such an association is not limited to the decease of the owners, secondly the ownership interest can be easily transferred in the form of shares and stocks and lastly, the liability is limited to the fund invested. While the disadvantages of the forms are that the earnings may be taxed twice, once at the corporate level then again as tax on dividend which is received by the stockholders, as it would be gain to them. Also setting a charter to form an organization, setting bye laws and filing for all the reports and documentation required by the state and federal government is a complex work.
c. How do corporations go public and continue to grow
In the initial phase when a business is set up by a person all the financing is done by him on a personal basis. But as the firm grows it needs larger resources to set up the infrastructure required i.e. factory, machinery, inventory, workforce etc. most times external funding is required when this phase is arrived at, so external investors such as friends, family, private investors and venture capitalists are approached. If the firm is seen to have a notable growth then they approach banks or raise funds by selling stocks to the general public. This is known as the initial public offering. Post an IPO firms can sell more shares or bonds or raise bank loans to help the firm grow further. Thereby with the help of the financial market the organization can grow provided it has its core capabilities to create a sustainable advantage in the industry.
What are agency problems What is corporate governance
Corporations are large entities which have an individual existence due to complexity of the functions and high volume, they cannot be run single handed by the owner. So there are managers who take care of various functions and business processes. These managers have been hired by the company so they may act in their own best interest rather than consider that of the corporation. This problem which arises between the management and the owners due to difference of interest is the agency problem. Agency problem can hinder the performance of a company and also its financial decisions.
The corporate governance is used by most firms these days to the organizations run with the best interest of all stakeholders in mind. Corporate governance is a set of rules and regulations which steer an organizations control, administration and behavior towards its stakeholders (managers, employees, customers, shareholders, competitors and society at large. 
d. What should be the primary objective of managers
The management primary objective is wealth maximization for stockholders. The manager should formulate policies that increase the wealth of shareholders. A managers objective is to thereby maximize fundamental price of an organizations stocks and shares.
Do firms have any responsibilities to society at large
Organizations have a great responsibility towards the society at large. The society is among the major stakeholders of a company so it is important that a company fulfills its corporate social responsibilities. The firm should provide a safe business environment, to control pollution, and manufacture safe products.
 Is stock price maximization good or bad for society
Stock price maximization is a good thing for society as they are also stakeholders of the organization. However if the company is involved in any illegal methods such as accounting frauds, violating rules and regulations or not meeting environmental norms, then it has negative impact on the society. Other than unethical methods stock price maximization proves to be good for the society because of the following reasons With the growth of pension funds, mutual funds and insurance companies, many people have a stake in the share markets. So they are directly or indirectly related to the price maximization, and benefit from it. Price maximization is resulted by efficient and low cost processes and high quality inputs at a value price for customers. So the end customers are benefited by the actions taken to bring forth price maximization. Again a management looking forth to a price increase would try and enhance sale and create customer satisfaction so the customer is always benefited through the initiative. Most companies which look at maximizing price retain its employees, and also study shows that these are the companies which treat its human resource well. So the stock price maximization initiative helps the employees as well. There by it is positive for the society at large.
(3) Should firms behave ethically
Yes, firms should behave ethically. Business ethics is the attitude and code of conduct which is followed by an organization. It entails the way a company behaves to all its stakeholders, customers, employees, community, stockholders etc. a firm which makes an initiative to bide by rules and regulations and work keeping in mind all moral standards have been recognized by the society and business arena over the years. These firms create goodwill for themselves and thereby have a sustainable advantage over its competitors. An ethical company also attracts and retains the talent pool which is essential for every organizations success. So a firm should behave responsibly.
e. What three aspects of cash flows affect the value of any investment
The three basic aspects of a cash flow that affect the value of any investment are
The financial asset is only as valuable as the cash flow it generates, so a financial asset that generates higher cash flow will be preferable by investors.
The time when the cash flow is generated is important. Any cash flow which takes place sooner is beneficial
Investors are risk averse by nature. So they will pay a higher amount for a stock whose cash flows are less risky. Thereby more the certainty of the cash flow, the higher the probability that investors would invest in it.
f. What are free cash flows
Free cash flows are those cash flows that are available for distribution. If the cash flow is available for disbursement among creditors and stockholders, then it is known as free cash flow. Free cash flow depends on three factors, sales revenue, operating cost and required investment.
FCF sales revenue- operating cost-operating tax- required investment in operating capital
g. What is the weighted average cost of capital
The risk affiliated to a firms operation and investors attitude towards the risk involved help determine the rate of return which the investors would require. This rate is termed as the weighted average cost of capital, as it is a cost from the investors point of view. WACC depends on various factors such as capital structure, interest rates, firms risk etc.
h. How do free cash flows and the weighted average cost of capital (WACC) interact to determine a firms value
A firms value is the present value of its free cash flow, discounted at WACC. If all relevant information is reflected in the market price, then the intrinsic value is same as the observed value.  The relation between weighted average cost of capital and free cash flows is specified through the equation given below

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 I. Who are the providers (savers) and users (borrowers) of capital
Business and firms of any form need funds and capital to run their business successfully. Funds and capital is required for building infrastructure in any country and so capital and funding is required for it as well. Individuals also require funds and loans for the buying homes, cars etc. so the borrower can be an institution looking for further growth or an individual person seeking to satisfy his personal needs and wants. However, non-financial organizations are the primary borrowers and so are federal, local and state governments. Banks on the other hand raise funds from individuals (savings account) and then invest it with others. Financial organizations also borrow and invest the raise amount itself. Cumulatively speaking household owners are the primary savers and are providers of capital.
How is capital transferred between savers and borrowers
The transfer of capital between the saver and borrowers can occur in three ways. Direct transfer is where the business sells shares or bonds to the saver. The involvement of a financial institution is absent. The savers in return for the stocks provide money to the businesses. The other form is indirect transfer, in which a middleman or an underwriter facilitates the issue of the securities. Here the sale of securities takes place through the middleman. First the shares or bonds are sold to the investment bank or underwriter, who then sells the same securities to savers. This is a primary market transaction.
The third form of transfer is made through a financial intermediary. The intermediary could be a bank or a mutual fund. The funds are collected from the savers by the intermediary, and in exchange he offers the savers shares of his own securities. Later the intermediary purchases shares of the businesses with the money that he received from the saver. Thus a new form of capital is created.
 j. What do we call the price that a borrower must pay for debt capital What is the price of equity capital
The price that a borrower must pay for debt capital is the interest rate, while the price of equity capital is called the return on equity capital. The return on equity is given in form of dividend and capital gains.
What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy
The four most fundamental factors that affect the cost of money are production opportunities, time preferences for consumption, risk and inflation. Production opportunities mean the ability to convert capital into benefits. So the expected rate of return that is available from productive assets is known as production opportunities. The more productive the producer believes the opportunity to be, the higher price he will be willing to pay for the assets. Time preferences for consumption is the inclination a consumer has to the time of consumption that is whether the person wants to invest now or in the future. Those with low preference for current use will lend at lower rate. Inflation is the propensity for the price to increase, the higher the inflation, the more the required rate. Risk refers to the chance that the future inflow may not be as expected the higher the risk, the higher the rate of return.
 k. What are some economic conditions (including international aspects) that affect the cost of money
Economic conditions that that affect the cost of money are
Federal Reserve policy the money supply of a nation has a great affect on the inflation rate as well as influences all its activities. If the federal policy increases the growth in money supply, then the interest rate would lower. But a long term effect may be an increase in inflation which would cause the interest rates to rise.
Federal budget deficit or surplus if the government spending is greater than the tax collected, then it runs in a deficit. This deficit has to be covered by increase in money supply or borrowing of funds. If the government borrows then the rate of interest would rise.
Business activity During crisis situation organizations reduce wage inflation and lower hiring, the consumer spending there fore decreases. So inflation falls and so does the interest rate. The cash has more loan able funds which are lend out at lower rates.
International trade deficit or surplus with the advent of globalization countries are found to sell and purchase from various countries across the globe. If the purchase is higher than the sales, then the trade deficit is existent. This amount again needs to be covered through borrowing, thus the interest rates rise up. 
International country risk country risk is the risk associated with conducting a business in a particular country. The social, economic and political environment plays a large role in defining the country risk. The country risk may increase the cost of capital significantly.
International exchange rate risk international funds are subjected to the exchange risk fluctuations, so exchange rate risk is found. Performance of a security and exchange rates thereby derive the value of a security which is being traded internationally.
 l. What are financial securities
Financial securities are negotiable instruments and have financial value. The financial securities can be of many forms and will have the ability to generate return on the face value for the holder of the security. A financial security has contractual obligation.
Describe some financial instruments.
There are various types of financial instruments. The primitive ones claim the cash flow. Common examples of such instruments are stocks and bonds while derivates value is derived from the value of an underlying security or asset. Common examples of derivatives are future, forwards, options etc. some short term instruments are treasury bills, commercial paper, CD etc. mortgages, corporate bonds, commercial loans, and municipal bonds are among the many financial instruments.
 m. List some financial institutions.
Some financial institutions are Investment banking houses, Commercial banks, Financial, services corporations, Savings and loan associations, Mutual savings bank, Credit unions, Life insurance companies, Mutual funds, Traditional pension funds and hedge funds
n. What are some different types of markets
 There are different types of markets based on the security type or region served. Some of the financial markets are physical asset market, spot market, future market, money market, mortgage market, world, national, regional and local market, private market and primary and secondary market.
o. How are secondary markets organized
Secondary markets are of different types depending on location (physical and computertelephone network) and the mechanism for matching offers from buyers and sellers (open outcry auction, dealers and electronic communication network).
 (1) List some physical location markets and some computer telephone networks.
Physical location exchanges are transactions are made on the trading floor by outcry that is verbal bids and offers are entered by traders. This happens in some stock and commodity exchange. The computer telephone networks are virtual exchanges where all the trade is done electronically on the computer through traders. Physical location markets aid communication between buyers and sellers of financial instruments. They are physical entity establishes at a particular place and is governed by a board. A computer telephone network help all the transactions take place which are not conducted at a physical location exchange. They facilitate communication between buyer and sellers. Examples of physical location markets or exchanges are CBOT, AMEX, NYSE and computer telephone networks are NASDAQ, Foreign exchange markets etc.
(2) Explain the differences between open outcry auctions, dealer markets, and electronic communications networks (ECNs).
Open outcry auctions have the buyer and seller standing face to face, so they both state their price to buy and sell. So the matching of trade price takes place. In dealers market, the dealer has the securities as part of his inventories and he offers to sell or buy them. Those who want to trade can see the offers made by the dealer and then transact with the dealer he chooses. In electronic communications networks, the offers from buyers and sellers are matched automatically. The transaction is not manually done it is completely automatic in nature.

What is the meaning of share value maximization If a firm attempts to maximize its fundamental stock price, is this good or bad for society Explain.

The shareholder value represents the interest of stakeholders in a business. Shareholders experiences or seems to see an increase in the value of their shares through dividends or gains at stock exchange. Share value maximization is one of the principles used by management to prioritize the interests of shareholders through projects that will increase profits and ultimately the share dividends. Stock price maximization involves adoption of low cost and efficient processes so as to manufacture goods and services of high quality at the lowest cost possible. Thus, by adopting new technology to produce required goods and services by consumers, is beneficial to the society both in the short and long term basis. In addition, it facilitates courteous and efficient services as well as adequate stocks of merchandise (Kellison, 1991).

Discuss the time value of money concept. What is discounting and how is it related to compounding What is compounding Explain why earning interest on interest is called compound interest
Time value of money is concept used in financial management to compare alternatives in investment as well as solving problems that involve mortgages, savings, loans, annuities, and leases. Time value of value of money is based on the idea that the amount of money one holds today is worth more than the expectation that heshe the same amount in future. The currently held money has high value in future as it can be invested and earn interest after some time. Discounting involves calculating or converting specific future amountvalue of money at certain discount rate to establish its present value. Thus, a person is able to make judgment on whether to invest such amount of money and reap rewards in future. On the other hand, compounding refers to adding interest earned to the principal amount so that it can go on earning higher interests in its own right. The reason that initial interest earns additional interest i.e. compounded is why it is called compound interest (Kellison, 1991).
Explain the following statement While the balance sheet can be thought of as a snapshot of the firms financial position as of a point in time, the income statements reports on operations over a period of time

The balance sheet shows the financial position of an enterprise in terms of net assets, capital (stockholders or owners equity), and liabilities as at the end of a specific fiscal period. At any moment in time, assets are equal to the owners equity plus liabilities. Liabilities represent creditors claims against the assets of an enterprise. Thus, a balance sheet facilitates a business owner to quickly assess the financial capability and of hisher business. Income statement shows all the business transactions in terms of sales and purchases made, revenue collected, and expenses incurred in given period of time. Therefore, the primary use of income statements is to testify if a company is making profit or loss for a given period of time to the shareholders or potential investors (Frank, 2004).         
Why is it sometimes misleading to compare a companys financial ratios with those of other firms that operate in the same industry

First, it is in doubt that different companies apply or use different accounting policies to govern their financial operations. Therefore, a specific accounting policy applied by a certain company may not be similar to anothers policy. For instance, a company may apply accrual basis concept whereas another doest not recognize accruals until they are paid. Secondly, companies operate differently in terms of business activity and management for instance, companies may be in the same industrial sector but they engage in different activities such as production of raw materials and processing. In such a case a production company may be affected by adverse conditions like weather whereas the other is favored by industrial-processing subsidies offered by the government which translates to healthier financial ratios. In addition, some financial managers of certain companies are unscrupulous and such individuals can calculate unprofessionally to lure potential investors. Proper comparison can only be achieved if there are established industrial standards within which all companies can draft their financial ratios (Ibid, 2004).         

International Monetary Fund (IMF) is an international organization that is mainly concerned with the financial systems of the whole world with regard to the macroeconomic policies of the member countries (Takagi  Hicklin 2007 89). It is an organization that was formed by many different states with different economic systems with the main objective of making the international exchange rates stable. The other core objective of the IMF was to facilitate development by enforcing the existing liberal economic policies. It has its headquarters in Washington D.C. in the United States. It was created in July 1944 with only 45 member countries. From the time of its creation, it was purposely meant to help member countries with loans to correct their payment imbalances. As of present, the IMF has a total membership of 182 states who work together to promote cooperation of monetary policies between member countries and to promote trade (International Monetary Fund 2006). All the member states are represented by 24-member Executive Board where five directors are appointed by five member countries with the largest quotas (Cftech.com 2004). The other 19 executive directors are appointed by the remaining member countries (International Monetary Fund 2006). Further still, each member country appoints a governor who represents the state in the board of governors in the IMF.

   The IMF was created during the United Nations Monetary and Financial Conference where 45 representatives of different states met in Mount Washington Hotel in New Hampshire, United States (International Monetary Fund 2006). The delegates came to an agreement for an international economic framework. There were only 29 member countries that first signed the articles of agreement (International Monetary Fund 2006). The real purposes of the IMF are still the same as they were outlined during its formation. Despite the challenges the IMF faces in conducting its services to the member countries, it has still managed to function as it was stipulated to do during its formation. There are clearly outlined terms of conditions that a country must fulfill in order to be a full member of the IMF. The state willing to be a member must take the necessary legal steps that are required in its own law to enable it into signing the Articles of Agreement. The IMF has a staff of approximately 2,600 from 110 states (International Monetary Fund 2006). The current managing director is Michel Camdessus who was appointed in 1987. Generally, the IMF is managed and governed by its interim committee, the Board of Governors and the Executive Board.

    The IMF shares in common a number of features with the Bretton Woods institution that was formed mainly to prevent the re-occurrence of confusion that happened in the events of world war period. These events were marked by inflation, high speculations in the market of foreign exchange, restrictions on trade and payments that were international, too much fluctuating rates of exchange and sharp drops in economic activities among others. The founders of the IMF wanted a global financial system to be stable and a good gold exchange standard (Cftech.com 2004). The gold-standard exchange was meant to be automatic in its operations and to maintain economic stability. It is evident that it failed to do so. One of the reasons that led to the creation of the IMF is the fact that during the world war period, many states all over the globe invented economic policies that later led to international economic war. The only way the world could evade this was to create an organization that would manage the worldwide economic system.

    Another reason that led to the formation of the IMF was the debts that existed in the whole world. It is evident that at the end of the world war, many of the countries  infrastructures were damaged and the economic systems of many states were ruined due to far-fetched economic policies stipulated by the particular states (Cftech.com 2004). These countries went ahead and started borrowing immensely from the rich countries. Further still, these poor countries were not able to repay these debts and most of these rich countries cancelled these debts. To curb this incapacitation of debt repayment, there was a dire need for a creation of an organization that would manage and supervise how governments use their funds. In this regard, the IMF mainly became a duo-role institution playing important parts both as a financier and supervisor (International Monetary Fund 2006).IMF as a Financier

    One of the roles of the IMF has been the establishment of Par Values that are adjustable to the currencies of member countries (Takagi  Hicklin 2007 89). The charter of the IMF during its formation set up a system of exchange rates that were fixed with the intention of curbing the challenges brought by the inter-war period to member states. To deter the same from happening again, the IMF set up fixed exchange rates of the entire world to enable different states exchange their rates on fair deals. It was evident that most people would migrate, travel, trade or do any other activity that would need an exchange of currency from one state to another (International Monetary Fund 1997). The IMF managed to create a fixed currency exchange between member countries in relation to the cost of the dollar. However, there was a challenge to this in the 1960s as there was a financial and economic turbulence that was seen in the whole world. This significantly led to the collapse of  the fixed exchange rate. The IMF further outlined a system where the exchange rates are floating and governed by the market forces of demand and supply (International Monetary Fund 1997).

    While another important role of the IMF is the lending function, there was an increasing need for the IMF to manage how the finances were used in member states. It is a fact that a country cannot really manage its internal finances on its own, at one point or another it needs an external help from an organization or another country (Cftech.com 2004). It happened that at the end of the world war, many countries needed financial help from the rich super powers that were there by then. It also happened that most of the countries that borrowed money were unable to pay back. These rich super powers were forced to call off the debts. To deter this from happening again, the IMF was created and it has been able to provide the lending function to all member states as they can now borrow money from the IMF and return it when they are capable (International Monetary Fund 1997). One of the uses of this money borrowed from the IMF is meant to clear balances of payments of the member states. One may ask where the IMF gets its money from. The primary source of money of the IMF is through the member s quota subscriptions. Every member of the IMF is required to submit some money during its entry into the membership. Quota subscription is given in terms of the size of the economy of the member country. The larger the size of the economy, the greater amount of subscription quota a state is to give to the IMF during its entry into the organization. Further still, the stronger the currency of an economy, the less the subscription quota (International Monetary Fund 1997). Quotas are very important when it comes to some aspects in the IMF. The voting power, for instance, is controlled by the amount of quotas a member has in the IMF. Therefore, it is clear that a wealthy member of the IMF will always have the first priority when it comes to voting. Quotas also determine the allocation of Special Drawing Rights and each country s access to the resources of the IMF. Special Drawing Rights is more like an international asset created by the IMF that belongs to each member state but is held by the IMF (International Monetary Fund 1997).

    Many tend to think that when a country gets help from the IMF, it has taken a loan or just borrowed. The actual thing that happens is purchase of Special Drawings Rights (SDRs) or even other currencies from the IMF in exchange for its own currency which it agrees to sell back or repurchase later in the future (International Monetary Fund 1997). Since each member is often charged for this transaction, the purchase can now look like a loan to the member state which is merely a transaction. All the money of the member states that is obtained from the IMF lies within the powers of the financial system of the member country. Therefore, the country can decide to do with it any purpose that most likely relates to the support of balance of payments, for instance, restoring the reserves in the central bank of each state. This can be done by selling the acquired currency in the foreign exchange markets with the aim of stabilizing its own exchange rates. Something the IMF takes into account is to limit the borrowing procedures of the member countries. Without this, the member countries can go ahead and borrow without considering their capacity to pay back (International Monetary Fund 1997). Therefore, the IMF has safeguarded its resources and developments in the liquidity fund.IMF and Supervisory Roles    Supervising is another role the IMF does over the exchange rates of member countries. With the collapse of the system of fixed exchange rates of Britton Woods, the charter of the IMF was amended in that all the member countries could choose an exchange rate of their own. In order to promote a stable exchange system, there was a need for all the member countries to come together and ensure orderly exchange arrangements. Article IV of the IMF charter gives it powers to supervise the policies of the exchange rates of member countries. The same article gives the IMF authority to implement principles that will control the exchange rate system with regard to those principles. The IMF supervision can be of two ways, bilateral and multilateral. Bilateral supervision includes the activities that the IMF watches in the member states, for instance, governance issues, social, environmental, industrial and labor market among others, that all have an impact on the economic management of the state (International Monetary Fund 2006). All the IMF representatives of the member states take time to follow up the activities that the IMF funds do in their member countries. On the other hand, multilateral supervision focuses on the policy and economic spillovers between states. The IMF has taken time to supervise policies that are regional based, for instance, on the Central African Monetary and Economic Union or any other national policies that have regional impacts (International Monetary Fund 2006).    The role of the IMF in the financial sector and the supervision sector has been seen through its encouragement of the member countries to make their currencies more exchangeable for foreign currency (Bordo, Mody  Oomes 2004 6). This is to say that each member state is advised to make its currency more convertible with other member states. One of the main purposes of the IMF is to promote and foster the expansion of trade and its growth among the member states. The only way it does this is by the establishment of a multilateral system of payments through trade and transactions. Currency convertibility is very necessary in a successful international trade. In the pre-colonial period, all international trade transactions were done in dollars and all exporters and importers had dollar accounts mainly for the purposes of trade. The IMF has well-outlined regulations on the currencies of member states, for instance, a state should have only one agreed currency that is convertible (International Monetary Fund 2006).

     The IMF as an organization has its own means and ways of ensuring all the member countries comply with the rules and regulations that have been set out. In doing this, the IMF has managed to supervise the implementation of its objectives and purposes. To assure compliance to its policies and regulations, the IMF has several ways to punish the members if they cannot keep up with the policies of the organization. Many have always thought that the IMF has no real power over the member states  compliance with the policies (International Monetary Fund 2006). However, the IMF has the authority to command leverage among the member states. States that fail to act as per the guidelines of the IMF policies will not be sued by the IMF or any other person, but will be in one way or another punished. One of the ways the IMF can deal with a state that violates its policies is by shutting it out of the capital markets that are known internationally (Bordo, Mody  Oomes 2004 6). It can also withhold the funds of that country and stop any further lending to that particular member state. Further still, the IMF can stop the state from ever using the General Resource Account however needy it may seen to be. But from the look of things, many nations who are member states of the IMF have been seen violating the IMF policies.

    The IMF as an organization has always offered financial technical assistance to all its member states. Immediately after the Second World War, most ex-colonies needed help in terms of setting up financial institutions and finance ministries. The IMF has always supported the member states in institution building, fiscal policies, and financial legislation among others. Even though the help might not be financially oriented, the IMF has often helped in the development of infrastructures and any other form of technical support. This is evidently seen as many banks or central banks are being set up in every member state of the IMF to help in the supervision of its policies all over the member states (International Monetary Fund 2006). Different infrastructures and facilities have been set up not necessarily in the economic sector, but the facility has always been linked to the economic sector (Bordo, Mody  Oomes 2004 6). These investments remain to be an asset of the member state s economy.

    The roles of the IMF have been linked with good governance in the member states. All along, as the membership of the IMF keeps on increasing each year, the governance in the member states improves each day. Good governance is really concerned with the approaches to the macroeconomic problems of a particular country. These include the transparency of the accounts of the government, the efficiency of the public resources and their management, the stability and transparency of the economic and regulatory scenario for sectors that are private. With proper handling of these sections in any government, there are great chances of that government running smoothly as required (International Monetary Fund 2006).

     The IMF has all along been providing technical assistance and advice to its member states, helping improve the governance of the member states and fostering accountability and transparency in the public sectors of the member countries. During its formation, the main purpose of the IMF was to give encouragement to the member states in the correction of  imbalances in the macroeconomic sectors, reduce inflation rates, ensure fair and free trade and stabilize its exchange rate. Among other things, the IMF was to improve efficiency through supporting the states in sustaining their economic growth. It is a fact that the IMF has kept its word in ensuring its objectives up to date (International Monetary Fund 2006).

     Further still, the IMF has realized a wider range of reforms in the institutions that are wanted to purposely maintain and establish confidence in the private sector which is the foundation of a growth that is sustained. For most economies to prosper, they must win the confidence of the public sectors within their boundaries and tolerate zero corruption levels. Among other things, the states are to improve accountability and efficiency as elements that are essential in the prosperity of their economies.

     The IMF has outlined guidelines to mainly help in the government issues of fostering a stable economy. It is evident that in the recent years most of the IMF staff has really supported the activities of the IMF in promoting good governance among the member states. Most of the guidelines that were outlined are purposely meant to foster more concentration to the issues of governance by the IMF. A treatment that is more compressive in the situation of the IMF supported programs and the Article IV consultations of those issues of governance that are within the mandate of the IMF and its expertise are some of the guidelines that were outlined by the IMF in promoting good governance among the member states (Cftech.com 2004).

     The IMF plays a role in the good governance of member states in several ways. In one way, it has helped its member states a great deal by creating systems that in all possible ways try to limit the objectives of all economic decision making. The IMF further plays a role in promoting preferential treatment of organization and even individuals by the government. In most countries, all companies are controlled by the government, even the private sector companies governments played a great role in their success. But with the IMF, it has played a vital role in giving such companies a dependent lifestyle which they have adopted and they have always ensured success in all they do with the encouragement of the IMF for a liberal currency exchange, price systems, and even the elimination of credit allocations that are direct (Cftech.com 2004). Further still, the IMF has played a role in enhancing the capacity of member states in implementing and designing their economic policies, taking their public sector and accountability to a higher level and creating policy making institutions that are effective within the boundaries of the member countries. With these provisions, the role of the IMF in promoting development in member countries is clearly seen and its efforts of achieving its objective in the creation of good governance have been met. The technical assistance provided by the organization has helped reduce so many wrangles in many states as who should do what responsibility and who should not do (Cftech.com 2004).

     The IMF has enhanced transparency in all the financial and economic decisions that are made in the member states. It has been seen to have supervised and taken a keen look at the budgets of all governments of the member states to ensure that there is transparency and proper financial transactions as outlined in the budget. It does this through the state representatives of all the member states. The IMF staff in all the member states focuses on the commitment and willingness of the national authorities in addressing the issues of the governments (Cftech.com 2004). The IMF statistical, auditing and accounting systems in all the member states have greatly improved the governance of the member states by exposing the faults of poor governance and limiting corruption opportunities. With the help of its staff and the support of some government officials willing to improve the governance, the efforts of the IMF have always been successful in many states. Wherever there is a need for correction in the government, the IMF staff representatives in member states always help in giving the correct decisions in the government.

In summary, the IMF as an organization has really achieved a lot since its creation. It has brought a lot of positive changes to the member states and as the number of the member states increases, the roles and objectives of the IMF are seen to be achieved even more. The IMF organization was purposely created to help the member countries to ensure balanced financial and economic governments in all the member states. Moreover, the IMF has gone further and adopted other responsibilities that in all ways seem beneficial to the member states. Some of the reasons that led to the creation of the IMF include the focus on all the technical issues related to the affairs of international monetary. There was also a need to deter some of the financial and economic activities of member countries from happening again as was seen after the world war. The IMF has taken the financial roles and the supervision roles in the member states. One financial role that it has provided is the establishment of Par Values of currencies of the member states that are adjustable. This has greatly enabled the member states have a currency that has a value equivalent to that of the dollar. As the fixed exchange rate in the Bretton Woods institution collapsed, the IMF introduced exchange rates that are floating and governed by the forces of demand and supply. Another important role the IMF has assumed is the lending function. The IMF has really helped in the creation of  good government in all its member states.

IMF is the central organization to the world which provides monetary cooperation. Almost all countries across the globe work together in the organization to achieve a common goal. IMF was envisioned in Bretton Woods, northeastern United States in the year 1994. The primary motive behind setting up the institution was to avert any disastrous economic mistakes in the future that could cause a crisis as big as the Great Depression again. Providing loans to member countries to rebuild reserves, stabilize currencies, continue trade and restore economic health are among the primary role for IMF. The three main functions of IMF are surveillance or monitoring economic development and provide advice on policies, lending money and providing technical assistance. A country can borrow from IMF if the balance of payment need arises. So the loan provides a cushion so that economic reforms and corrective measures can be taken and a growth oriented economy can be built. The IMF has 186 member countries which contribute operating funds. They get voting rights depending on the amount of international trade, global reserve holdings and national income. IMF has no obligatory right over member countries, however if a country does not adhere with its policies, it may deny to provide loans to them or leave the organization. Critics however argue that the stern measures and rules of the organization make it difficult for borrowing countries to grow, and make it even more difficult for poor countries to deal with crises. The amount of loan provided has fluctuated greatly from 1970s to 21st century. The 1970 oil shock, debt crisis of 1980 and the transition phase in Central and Eastern Europe of 1990s led to an increase in demand for loans. Latin America crises kept the volume high in the early 2000s but these loans were repaid when the economic condition improved. 2005 onwards again saw a rise in need for loans as the real estate bubble burst setting a ripple effect across the globe starting in the US. So a change in trend of the IMF has been monitored in the years that have passed.

IMFHistory of establishment Cooperation and reconstruction (194471)
Countries in an attempt to revive their economies during the great depression, 1930, started heaving barriers to foreign trade and exchange they devalued local currency to increase their participation in the export market. However these efforts showed a negative result rather than presenting positive outcomes. The world trade was found to decline, the employment levels also plunged down this lead to the foundation of IMF to oversee international monetary system. The entity was formed to establish stability in the exchange rates and to encourage countries to participate in trade.

The Bretton Woods agreement
July 1994 representatives of 45 countries met together conceived IMF in Bretton Woods, New Hampshire (United States). They agreed that a structure for economic cooperation between member(s) countries would be formulated post the Second World War. The framework was formed to help avoid reoccurrence of any economic disaster of the past. In December 1945, IMF came into existence when 29 countries signed the Article of Agreement. The operations began on March 1, 1947 and France was the first country to take IMF s help. 1950 to 1960 saw a large number of countries applying for membership however the Cold War put limits on membership issued.
The countries that had joined the IMF from its inception to 1971, made an agreement to peg its exchange rates such that it can be adjusted. The measure ensured that any fundamental disequilibrium if created in the balance of payments could be adjusted by the IMF when required. This system also known as the Bretton Woods system existed till 1971, when finally the US system stopped the convertibility of dollar into gold.

The end of the Bretton Woods System (197281)
Fixing of U.S. dollar value against gold, an rise in expenditure on President Lyndon Johnsons Great Society programs and the increased spending on military expenses for the Vietnam War overvalued the dollar greatly this lead to the end of the Bretton Woods System between 1968 and 1973 when major currencies started to float against one another. Post the fall of the Bretton Woods System, member countries could chose any exchange arrangements they wanted to. They could peg their currency to others or a bouquet of currencies, adopt someones currency, form monetary union or partake in a currency bloc. With the fall of the Bretton Woods System many expected the high period growth to slow down, however, floating rates served to be beneficial as countries found it easier to adjust to the rise in oil prices in October 1973. The external shocks were dealt with more smoothly due to the change in system. IMF helped during the oil shock phase of 1970s by providing lending instruments. Mid 1970 onwards, IMF tried to help and solve balance of payment problems faced by many poor countries by financing them at concessional rates via a fund called Trust Fund. A concessional loan program was set up by IMF in March 1986 which was later succeeded by Enhanced Structural Adjustment Facility (end 1987)

Debt and painful reforms (198289)
The oil shock had led to a global debt crisis. Commercial banks had lent recycled petrodollars, by acquiring deposits from oil exporting countries and lending to oil importing and developing ones. When the rate of interest rose in 1979, it was found that the floating rate of interest on loans also rose. During 1978-81, the interest payment was against the loans was expected to be 22 billion. Also with the recession setting in he price of commodities from developing countries dropped. Expansionary fiscal policies and exchange rate overvaluation were adopted to help deal with such states. During the crisis in Mexico in 1982, IMF synchronized a comprehensive response with all its members and commercial banks, as a fall of most economies would lead to a global disaster. A lot of economic reforms and global movements had to be taken to help improve the condition.

Societal Change for Eastern Europe and Asian Upheaval (1990-2004)
IMF was a global institution with the fall of the Berlin Wall in 1989 and closure of Soviet Union (1991).  Membership was found to increase speedily from 152 to 172 countries. In an attempt to meet the additional responsibilities the staff had to be increased by close to thirty percent in six years. The board of directors was increased to 24 seats and the constituencies under directors also expanded. IMF played a crucial role in the transition phase of Soviet bloc to become a market driven economy. The economic transition was rather dynamic and never attempted before. The countries worked directly with IMF taking note of its financial advice, guidance and support. Most of the countries went through great reforms and later joined the European Union (2004). In 1997 East Asia was faced by great crisis, almost all the countries asked IMF for assistance (financially and to formulate economic policies). Because of difference of opinions in ways to deal with the wide spread crisis, IMF came under serious criticism. IMF learned from the Asian Financial Crisis and ensured that in future they paid attention to a countrys banking sector. IMF later in 1999, along wth World Bank, initiated a program called the Financial Sector Assessment Program and assessed various macroeconomic elements of a nation on a voluntary basis. A re-evaluation of fiscal policies during the time of crisis and limitation of financial resources were also analyzed again. IMF and World Bank worked together during the 1990s to help ease the burdens of under developed or poor countries. In 1996 an initiative was launched so that these economies would not face debt burden.
Globalization and the Crisis (2005 - present)

IMF has been among the primary institutions to lend to countries to help enhance global economy. The global crisis which began in 2007 with the mortgage lending, had a global impact on all countries. This lead to large imbalances in capital flows internationally. The capital flows totaled to 7.2 trillion in 2006. The crisis showed weakness in the financial markets, so IMF was appealed by many to formulate a stand by agreement and provide mechanisms of financial and reform related support. With support from creditor countries the lending power of IMF rose significantly to 750 billion. To help greater countries IMF included flexible credit line, it also started keeping a track of economic fundamentals of all countries. They also initiated various programs to help the low income and developing economies. Reforms were created to help IMF provide borrowings in a more efficient and quick manner. (IMF official website, 2010)

IMF Objectives and functions
The functions of IMF are wide spread but a concise summary of these functions are mentioned below
Surveillance over Member Economic Policies

The members of IMF have to follow economic reforms and policies which are in consensus with the objectives and goals of IMF. The Article of Agreement signed in the very threshold gives IMF the responsibility and legal authority to oversee that the countries that are members with the organization are following the common policies.

Financing temporary balance of payment requirements
The member countries can lend funds required to meet their balance of payment needs. The funds are provided on a temporary basis so that the countries can take the required corrective measures to set the problem right. It also helps evade unorganized adjustment of the imbalance. The lending is mostly under the economic adjustment program which is executed by borrowing countries. So the resources given by IMF are safe as these are given against corrective measures being adopted by countries. IMF also helps members mobilize external financing for similar needs.

Combating Poverty
In low income countries IMF provides concessional loans to help these countries grow so that they can eliminate poverty. They are closely affiliated with the World Bank and other development partners who help them support such cause. It also helps members mobilize external financing and donor support to help meet development needs of low income countries. IMF also partakes in two global initiatives, Heavily Indebted Poor Countries and Multilateral Debt Relief Initiative.

Mobilizing External Financing
Since IMF endorses the policies of a country so they often help mobilize funds through lenders and donors. The donors or lenders need lend their resources to a country or grant a debt relief, when IMF endorses the countries economic policies or a IMF supported economic program. Assessment and recommendations by IMF also help investors to predict the likely economic future of a country which helps the market confidence. (Blanco Sandra, Enrique Carrasco, 2007)

Building Capacity
The core areas of IMF expertise are well trained through technical assistance and training. This helps them build capabilities to design and structure better economic policies and management capabilities. This also reduces the risk of failure of the policies adopted and makes the country more capable of confronting a sudden economic shock. Such functions are really beneficial for developing countries as they have less resources and their structure is no built strong enough by then.

Strengthening IMF
IMF consults and collaborates with its members on various monetary and financial issues it also works closely with several multilateral institutions. To ensure that it is able to prevent and resolve economic issues on time, IMF s primary objective is to build its strength and capabilities.

Increase Global supply of International Reserves
IMF can issue Special Drawing Rights, which are international reserve assets, provided there is a need to enhance the reserve assets that are existent. The SDR s can be exchanged for convertible currencies and they cannot be claimed by the IMF as they are component of the net international reserves of all the member countries.

Dissemination Of research and information
IMF provides economic analysis and reports of countries and their economic policies. Various data and statistical information can be accessed through IMF reports and research. Specialized publication and economic reports are generated from time to time. Research related to IMF mandates and operations are also conducted. The research work helps the company guide and support the countries better in formulating economic policies and reforms. These results and findings are disseminated through various sources such as working papers, journals, internet, books etc. (IMF Handbook, 2007)

IMF Areas of financial assistance
IMF provides financial assistance to its member countries in various forms. Concessional loans are generally approved for countries which have a low income. The allotments are done through the Poverty Reduction and Growth Facility (PRGF). Non concessional loans are given by five mechanisms, namely Standby Arrangement (SBA), Extended Fund Facility (EFF), Supplemental Reserve Facility (SRF), Contingent Credit Lines (CCL) and Compensatory Financing Facility (CCF). All the non concessional loans are generally have a market based interest rate attached to it. A member country facing issue in the balance of payment can withdraw from its quota (gold convertible currency). The limit for the withdrawal is set at 25 percent. Beyond this, if the country still needs further resources it can lend up to thrice the total paid in quota it holds. (Bretton Woods Projects, 2005)

Standby Arrangement and Extended Fund Facility are among the two most used mechanisms implemented by IMF. When the countries which are members of IMF are allowed to lend money for a period of one or two years the funds are used to sustain macro economic stabilization programs. The loans are subject to interest payments and the funds are to be returned within three to five years. This mechanism is called the Standby Arrangement. The Extended Fund Facility allow the member countries to borrow for three to four years, however the repayment period is longer than in standby arrangements. The repayments are generally not outstanding before five to ten years. IMF also provides short term financing at non concessional rates to its member countries. The Supplemental Reserve Facility gives very short term loans to merging and developing economies. These funds are generally created by a sudden loss of confidence in the market due to great outflow of capital. The IMF provides large scale funds for such situations, so that the market sentiments can be revived and maintained. Under the Contingent Credit Lines IMF provides financing for national economic policies. These policies are formulated to prevent any economic crisis which arises due to a crisis situation arising in any other country in the world. Both Supplemental Reserve Facility and Contingent Credit Lines need the loans to be repaid within a one or two, and they have a surcharge applicable on it. Compensatory Financing Facility is loans provided to help a country during phases where there is an unexpected shortfall in export income. The reasons could be any unanticipated circumstance such as famine or natural disaster which has affected the harvest in a negative manner. The repayments of the loans are due within quarter to five years. Both compensatory and contingent financing are for unpredictable problems which arise in any economy. (IMF Official website, 2010)
IMF Countries being helped for the last 5 years

IMF has helped many countries over the years from its foundation till now. Over 186 countries have seeked the guidance and support of the institution in the last five years to develop and maintain its economic conditions. A list of all the countries who are and have been assisted by IMF in the last five years and even presently are stated below in an alphabetical manner
A Afghanistan, Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan
BBahamas,Bahrain,Bangladesh,Barbados,Belarus,Belgium,Belize,Benin,Bhutan,Bolivia,Bosnia,Botswana,Brazil,Brunei Darussalam, Bulgaria, Burkina Faso, Burundi
C Cambodia, Cameroon, Canada, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Congo, Costa Rica, Croatia, Cyprus, Czech Republic
D Denmark, Djibouti, Dominica, Dominican Republic
E Ecuador, Egypt, El Salvador, Equatorial Guinea, Estonia, Ethiopia
F Fiji, Finland, France
G Gabon, Gambia, Georgia, Germany, Ghana, Greece, Grenada, Guatemala, Guinea, Guinea- Bissau, Guyana
H Haiti, Honduras, Hong Kong, Hungary
I Iceland, India, Indonesia, Iran, Iraq, Israel, Italy
J Jamaica, Japan, Jordan
K Kazakhstan, Kenya, Kiribati, Korea, Kosovo, Kuwait, Kyrgyz republic
L Lao peoples democratic republic, Latvia, Lebanon, Lesotho, Liberia, Libyan Arab Jamahiriya, Lithuania, Luxemborg
M Macao ,Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Moldova, Mongolia, Montenegro, morocco, Mozambique, Myanmar
N Namibia, Nepal, Netherlands, Netherlands Antilles, New Zealand, Nicaragua, Niger, Nigeria, Norway
O Oman
P Pakistan, Palau, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Portugal
Q Qatar
R Romania, Russian federation, Rwanda
S Samoa, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Serbia, Seychelles, sierra Leone, Singapore, Slovak republic, Slovenia, Solomon, Somalia, south Africa, Spain, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the grenadines, Sudan, Suriname, Swaziland, Sweden, Switzerland, Syrian Arab republic.
T Tajikistan, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, turkey, Turkmenistan, Tuvalu
U Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan
V Vanuatu, Venezuela, Vietnam
Y Yemen
Z Zambia, Zimbabwe (IMF Official website, 2010)


IMF Problems and challenges of IMF
The primary objective of IMF is to promote financial stability to all its member countries. Over the years the international market has broadened greatly which have posed as a challenge for IMF, the number of members has also grown sharply so the responsibilities have grown as well. Globalization has also intensified over the years and cross border flows have also been high, so the role of IMF broadened. With the sub prime crisis the last few years have seen great amounts of anti crisis and multilateral policies which have been formulated and applied which have helped most economies. The economic data and financial performance show optimistic growth prospects. (Fischer Stanley, 2003) With the economic downturn setting in U.S. and other economies have taken major economic measures to deal with the crisis and avert it from reaching historical levels of failure. Layoffs and cutbacks in investment have been witnessed as global measures taken up. However the years to come would have to be cautious phase as the economies are still in the reviving stage. High level of unemployment and limited consumption gains have leaded to lower household spending prospects. The financial conditions are found to improve however the normal levels are still to be achieved. Credit losses are still high in many sectors, especially real estate. With gap in the outputs and moderate economic recovery, means that IMF cannot withdraw their support. The three key areas where IMF needs to render its help to member countries are surveillance, financial support provisions and technical assistance. Few of the key challenges which the IMF may face are specified below
IMF needs to safeguard the recovery of economies by supporting and ensuring global economic policies which support expansion and growth. Especially in developed and advanced economy the economic reforms should be implemented properly. Moving ahead of a medium term of limited spending and debt the global economies would set into a higher growth pattern. The responsibility of formulating required policies to ensure a sustainable balance growth is thereby a primary challenge which the IMF will face.  The mutual assessment of G-20 countries at Pittsburgh Leaders Summit looks at the same. IMF will support by providing analytical and innovative approach and provide multilateral assistance. The other challenge would be to defend and help the vulnerable economies survive the downturn and prosper. The IMF challenge is to make contribution to the growth of low income companies. The resources should help the countries increase their present level of unemployment and standard of living. To identify emerging vulnerabilities by providing research and economic analysis which may help the countries detect any imbalances before hand. IMF has to continually provide data and analysis on all its member countries.

The surveillance by IMF must focus on correct issues. With the wide range of fiscal, exchange rate issues and monetary policies there are a lot of issues that are to be overviewed by IMF. The structural and financial strength, external vulnerability and institutional issues all have a force on economic conditions, so IMF must make the right choice between the issues to concentrate on. Correct surveillance would help IMF identify risks and help formulate policies better. The integration of multilateral, bilateral and global surveillance also poses as a problem for IMF. The countries need to take surveillance more seriously. Most companies have domestic technical expertise so to help them realize how the resources and potential cost for IMF resources poses a difficulty for the fund at times.  So a strategic management of surveillance programs should be initiated. (IMF official website, 2010)

The implementation of more systematic common framework for assessment of public and debt sustainability is also a continuous process. IMF also needs to consider authorities priorities keeping in mind that no vulnerability is not avoided.

The IMF also faces a challenge in balancing its act as a confidential advisor and a market analyst which help provide lenders and creditors to help market sentiments.

The IMF also needs to analyze whether the availability of funds would indeed help an economy to overcome dilemma so it is important to analyze whether the problem can be credibly overcome by financial resources. (Truman Edwin, 2009)

Role of IMF for stabilizing the international financial system
IMF has 186 member countries and they together work towards creating a global monetary cooperation. The objective is to stabilize the financial system through well designed and planned economic policies that will enhance international trade, promote employment, support growth and reduce poverty. The primary functions are to stabilize the exchange rate for currencies, finance short term deficits, and provide advice and technical assistance to countries. (Global Financial Reports, 2010)

Under the gold standard system, the value of each currency declared its value against the US dollar and the US dollar was tied to gold, which they agreed to trade at 35 per ounce. The exchange rate could vary only by 1 percent, any movement greater than 1 percent was allowed to countries with a fundamental balance-of-payments disequilibrium after approval of the IMF was seeked. This system was planned to stabilize the entire global system, however in 1971 Richard Nixon ended this system. Post these countries were allowed to choose their own method to determine exchange rate. Post the fall of this system to regulate exchange rates, IMF started focusing on providing loans to developing countries. (Britannica Website, 2010)

To help improve the objective of stabilizing international monetary system, the system was changed greatly since its time of inception. Beyond providing loans and monitoring macroeconomic policies, IMF has incorporated various microeconomic elements as well. It realized that to realize the goal it needed to focus on second generation reforms such as institutional and structural reforms and policies. Also the amount of funds has been raised with a rise of funds first initiated in October 1998. With more countries joining the fund it has created greater responsibilities on the IMF. (IMF Official website, 2010)

Operating capital of a business is the most important of its entire components and hence a managers possession of the required knowledge on how to manage this capital is equally important for the general success of that business.

According to Lesonsky (1998), business working capital refers to the difference between its current assets and current liabilities. In a simple business language, it is the amount of cash needed to run the activities of the business effectively. As the most important business asset, cash will provide the management of Watree Lodge with liquidity and buying power. To achieve this, the management of Watree Lodge should be able to control the cash flow. This can be done through preparation of cash budgets that will enable them to manage cash inflows and outflows. When prepared well and in time, the cash budget will help the management know whether the business has enough cash to meet its financial obligations. i.e. the objective of cash forecast is to alert the management about possible shortfall in cash or surpluses. This will in turn help the management make informed decisions on whether to invest or to borrow in advance.  In order to realize this, the management should consult with all stakeholders including business managers as well as possible suppliers.  

Greenville Restaurant operates two bank accounts where one earns an interest while the other does not earn interest. Evidently, the management is losing a lot of revenue due to their poor banking options, for example, it takes too long for payments to be processed from clients since half of all orders are paid via mail. The management of Greenville Restaurant should therefore employ the special services offered by various banks to help it manage the business cash more effectively. The best service in point here is lockbox bank processing that allows a client with a huge number of receivable accounts to collect and process payments quickly i.e. this service will enable the bank to directly receive mail payments payable to Greenville Restaurant, a process which saves on time while enhancing efficiency.  

     As Greenville opens new restaurants it can reduce its administrative costs by employing account reconciliation bank service that allows the bank to create summary account reports that are then sent via internet to the business for easy cash analysis. This service will also help the business to guard itself against bank related fraud. The business will also benefit from bank sweep account services that will allow Greenville chain of restaurants to save and at the same time invest in overnight investments done by the bank on behalf of Greenville. Finally, because Greenville will own numerous bank accounts, it can also benefit from zero balance account service that allows the businesss numerous accounts to be consolidated so that individual accounts need not maintain minimum operating balances while at the same time exempting the account holders from paying certain charges.

In order to be able to manage their credit card payments effectively, the Greenlees should ensure that their progressive point-of-sale is PCIDSS compliant. As if that is not enough, the Greenlees need to make sure that their internet service is secure so that customers electronic data is kept confidential. Greenlees should use VISA and MasterCard since they normally charge the credit card fees at a lower rate. However, efforts should be put to increase credit card sales as this will considerably lower the rate of charges since the more the sale volume, the lower the transaction charges.

Simply viewed, purchasing is ultimately purchasing. Procurement specialists in the two sectors and even from the third sector of charitable, non-profit, and volunteer groups order their purchases from the same suppliers. Both the private and the public sectors pursue value for money. Towards this end, they plan responsible efficient and flexible procurement systems.  However, few differences draw the distinction between the two sectors. This is reflected in the radically different dynamics in the two sectors operations. As the paper unfolds, it emerges that there is a lot which the public sector can learn from the private sector if it is to achieve the same level of success enjoyed by the former (Barrett and Hill, 2004). 

The volume or size reflects on one of the commonly touted differences in the procurement sectors (Braczyk, Cooke and Heidenreich, 1998). However, it is inevitable to examine differences in reporting, competition, trade agreements, accountability, corporate culture, tendering processing, awarding tenders, and performance. It is also important to look into professionalism across the two sectors. The commonality or difference in skills is critical also. Ethical considerations across the two sectors are equalled examined with a view to raising valuable information whether the public sector has something to learn from the private sector or not.

The public sector management environment is heavily regulated by policy, legislation, and specific processes while on the other hand, the private sector remains more receptive to enterprising and entrepreneurial dynamics as exhibited by their differences in corporate culture (Braczyk, Cooke and Heidenreich, 1998). It is true that the private sector is also subject to certain rules and regulations but the difference rests on the nature of the regulations. The entrepreneurial dynamics are apparently an absent phenomenon in the public sector apart from few instances. This entrepreneurial focus is an area where the public procurement sector needs to learn and improve on based on the private procurement sector model. However, the sector may be impeded by the political influence, as the partisan nature of political processes is influential.  

The professionals who work in the public sector procurement need significantly more than the regular amount of diplomacy, patience, communication skills, and political intelligence if it is to prevail (Barrett and Hill, 2004). On the other hand, private sector procurement operates in more advanced challenges in the form of bigger risks, more recognition, among other issues. It is on this premise that the view that private sector pays more recognition to competence as key towards success in comparison to the public sector is held. The public procurement sector should minimise the diplomacy and political leanings and focus on competency just as the private procurement sector. Such focus should ensure bigger and attractive returns.   

Accountability and transparency present other areas of concern in reference to procurement (Barrett and Hill, 2004). This is influenced by the fact that the stakeholders in the public sector procurement come from diverse circles and do not stand a meaningful chance in influencing it. The stakeholders largely composed of taxpayers, clients, elected officials, and in other instances vendors, underscore this realization. On the converse, the private procurement sector employs up-to date mechanisms to ensure accountability ad transparency in engagements. Most private procurement entities also focus on specific markets, an aspect that the public procurement sector can only attain through the establishment of specialised separate units to address the various aspects of procurement demands.
It is thus not surprising that before procurement decisions are made, it is preferred that consensus is struck. Public organizations thus focus on consensus building rather than working competitively (Braczyk, Cooke and Heidenreich, 1998).  Public procurement officers are as a result under an obligation to work cooperatively as opposed to doing so competitively. This is further under-lied by the idea that public enterprises engage in the sharing of some information, as it is a requirement in most public organisations. Ontario Public Buyers Association offers an example of organisations, which operate under these conditions. Consensus building is desirable towards appeasing contending stakeholders but this holds limited economic sense. This holds true since consensus building does not factor in the essence of time and other factors, which influence business in a positive manner.    As proposed earlier, public procurement should be split into specialised units to deal with specific issues in procurement as it happens in the private sector.

The freedom and flexibility to conduct business is absent in the public sector (Earl, 2002). On the converse, the private sector enjoys the presence of these attributes, which constitute the dream pursuits of every buyer. Flexibility is examined in reference to the kind of red tape associated with the public sector procurement. The procedural rules negatively influence the procurement process as the lengthening of the exercise proves an unattractive proposition. The red tape as a result puts constraints and unnecessary demands on the process of procurement. Red tape was intended to ensure observance of set rules ad regulations, but this s no longer congruent with emerging trends in business.    As a result, doing away with the unnecessary procedural demands is desirable if the public procurement sector is to make progress.

The absence of purposeful negotiations, discussions, leniency measures further compounds the shortcomings associated with public sector procurement. It is notable that public enterprises do not take their time in responding to issues like requests for proposals. Precision and detail must be presented to every relevant department before a decision is arrived at. On the converse, in the private sector procurement, the clients issues are keenly attended to as required. In the entrepreneurship spirit, private sector procurement allows for the negotiation of deals on the basis of fees and terms of work which appeal to both parties, as a result, growth in private procurement in tandem with quality of work (Earl, 2004). The focus is on building a good and long lasting working relationship between customers and private organizations.  In the private sector procurement, if a company or client secures a satisfactory engagement, when similar projects emerge, the need to go through the same sieving exercises are not considered. The basis upon which tenders are given rests o the previous records of accomplishment.   

The solid ethical and moral aspects, which governmental organizations lean on, account for some unnecessary engagements. Public sector procurement demands that adherence to rules and procedures are unquestionable (Edquist, 1997). The formal protocol on responsibility, liability, accountability, and the need to protect government information constrains public procurement. On the other hand, the private sector procurement extends freedom on contractual engagements. The private sector clients focus on the market share, competitiveness, and visibility, fees, and contracts act as a measure towards achieving these goals. The moment corporate professionalism is established with a private sector client, the credibility set is useful in determining fruitful future engagements.  

Of late, governments are embracing e-Procurement this embracement is based on the realization made concerning the beneficial attributes arising from both administrative and cost reductions associated with such in the private sector (Malerba, 2002). Tendering platforms, desktop purchasing systems, and e-marketplaces, features common in private sector procurement have been adopted in the public sector procurement. This is a positive step, which should pave way for similar improvements towards the promotion of efficiency and effectiveness. 

The nature of public sector procurement goes through rigorous bureaucratic procedures based on institutional demands (Miles, 2004). The regulation process of public procurement, which witnesses different roles played by international, national, and regional authorities, implies that this type of procurement faces a number of hurdles to overcome. This regulation is meant to ensure competition and transparency in the procurement exercise. To cite an example, public procurement in the UK has to be consistent wit the European Union procurement guidelines, which offer a framework of rules on the issue. These rules and regulations deter EU member countries from distorting competition in public procurement on the basis of geographical or national basis. The creation of the European market provides an avenue for getting value for money in the procurement sector. Apart from adhering to the European Union policy on public procurement, the public institutions must also comply with the requirements imposed by the government as reflected by the Value for Money policy. This policy demands that procurement choices should be premised on whole life cost assessment as opposed to lowest price only.

On the basis of this synopsis, it is clear that government procurement is diverse in respect to what it has to cover. This extension and complexity implies that achieving efficiency and lower costs is hard to make operational. Reducing the complexity characterising public sector procurement is thus a challenge.

The tendering process is designed in a way that ensures that work done by the government is given out fairy. The government considers the pricing and the nature of the entity offering the required services. The aim is to ensure that tender processing is fairly done based on governmental policies. Though important, pricing is not the major focus in public procurement (Malone, 2001).

On the other hand, private sector tendering focuses on fairness and effectiveness in reference to competition. This is based on the drive towards achieving the most cost-effective outcomes in the tendering process. The primary focus is the cost effect, an attribute the government needs to learn from the private sector tendering (Malone, 2001). 

The political elite holds a lot of power when it comes to public tendering. This is partly due to the fact that the political class hold executive powers in country leaderships.  On the other hand, in the private sector, key officials of companies who hold the required expertise holds the power of making decisions on the tendering processes (Malone, 2001). The public sector should learn from the private sector by fully authorising the bureaucratic experts to control the tendering process.

If the public sector is to be in a position to operate competitively, it needs to posses buyer power. As in the case of the private buyer power, the public purchasing power may rise from the size of demand in reference to the public sector against the total market demand or due to strategic importance (Cohen and Levinthal, 2006). The size of the market however big, it may be affected by the uncoordinated and fragmented approach by the public procurement sector.  This uncoordinated approach lowers the purchasing power of the public procurement sector.  This presents one area the public sector needs to learn from the private sector. Towards this end, the public procurement sector should learn how to coordinate its activities properly in order to take advantage of its aces to big markets. 

The public procurement sector is fraught with unnecessary restrictions on participation (Cohen and Levinthal, 2006). The sector is also characterised with cost escalation. This especially affects small bidders. Such represent the level of discrimination in the sector. Large firms who are at a sound financial standing are thus the ones favoured in the public procurement sector.  Towards reducing the chances of participation from the procurement process, the nature of restricted communication as reflected in the limited publication of contracting opportunities, this coupled with the narrow based qualification criteria place too much focus on firm size and experience. There are both benefits associated with increasing the number of bidders. However, the question of whether the government attains the balance between increased costs due to the higher number of participants and the expected drop in the prices as a result of the fierce competition both within the short term and the long-term. The pursuit of value for money should ensure the correct trade off is made, however, this may never be the case. This is attributable to the fact that the administrative costs are more visible as compared to the cost savings obtained from intense competition. Further, afield, risk aversion may lead to favouritism in which case, well-established companies and incumbents take the opportunities ahead of new entrants. Incumbency may limit participation. This is possible if minor suppliers believe that the public procurement sector is friendly to senior suppliers. This implies that some suppliers may boycott the bidding exercises, as they fear their success chances are limited. Such boycotts may in turn trigger price increases due to lowered competition (Cohen and Levinthal, 2006). 

Openness and publicness pass as challenges on the public procurement sector.  Everything, which is done by public procurement, is subject to scrutiny from the public.  The public purchases are normally orchestrated through invitations for bids. This opens the process to public bidding. In public procurement, public bid tabulations, which are posted on government websites.  This implies that everybody understands what is going on.

Overall, the private sector procurement focuses on profit, which is achievable through fierce competition. In practice, there is great variation in the way in which private managers go about establishing links with the customers. This is captured by the pursuit of firms attempts to lock opponents out of the market (Malone, 2001). Some firms operate in unstable environments, others like do like monopolies, while others operate in relatively protected niches where entrants find it difficult to make inroads, this under-lies the kind of challenges facing private businesses. Some sectors and businesses adopt methods, which are technologically advanced than others, further compounding the challenges (Egeberg, 1995). On the other hand, the public sector passes as a more homogeneous entity operating in a placid environment.  Bureaucratic organisations are in most cases long establishments, which act, as monopolistic suppliers. The supply is to the society as opposed to the market, further to this, the pursuit of profits do not take precedence ahead of the provision of services to the citizens.

The assumption that the public sector has been lacking in innovation is often advanced. However, Tan, (2004) notes that the spur of competition lacks in public procurement, a stark contrast with the private sector procurement. The public procurement sector should embrace new technological innovations like e-Procurement if it is to gain from benefits associated with such advancements, as is the case in private procurement (Fagerberg, Mowery and Nelson, 2000). 

The drive towards introducing private-like procurement style into the public procurement sector is a plausible effort as this in the end translates into a number of benefits desirable to the needs of the clients its serves. Such adoption is bound to increase efficiency thorough cost reductions and improvement on service provision. The social responsibility is the major bottleneck affecting the public sector procurement.

The public institutions remain accused of being irresponsive to the needs of the people they serve. However, all public organisations exist in a global setting, which heavily bears on how operations are conducted.  This co-existence between public and the other sectors imply that there is a lot to be passed or transferred through learning.  The continued nature of existence of the public sector also indicates that learning through experience is a possibility since the various governments institutions are in a position to determine what works and the others which fail. The role of competition however desirable it is may prove inapplicable to the public sector procurement. This is the case in reference to when the public institutions are bidding for example, weaponry and other sensitive products.  The public sector is also charged with diverse responsibilities, which are not based on economic terms but rather on the social responsibility aspect.  Despite this, the public sector should learn from the public sector on how to become competitive on various fronts.

On the basis of the above realisation, it is hypothetically presented that adopting measures to delink the public procurement sector from the diplomatic and political machinations presents a way out in the area. The sector should also encourage more competition in terms of recruiting skilful personnel and in allowing a level playground when it comes to the tendering process. The sector is equally expected to alter the procedural requirements, which mire the biding and tendering exercises. Such a move should lead to a flexible system, which paves way for the achievement of efficiency and effectiveness in the sector.