1. Theories of international trade
• theory of mercantilism
• theory of absolute advantage
• theory of comparative advantage
• factor endowment theory
• theory of international product life cycle
• theory of competitive advantage
EPRG concept
• ethnocentric orientation
• polycentric orientation
• regiocentric orientation
• geocentric orientation
• Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
Adp
Special Drawing Right (SDR)
Emic vs. Etic dilemma
Eou
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Special Drawing Rights
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The Special Drawing Right (SDR) is a monetary unit of international reserve assets defined and
maintained by the International Monetary Fund (IMF). The unit does not represent a currency,
but represents a potential claim on the currencies of the IMF members for which it may be
exchanged.[1] Allocations of Special Drawing Rights to IMF members are backed by a fund
pooled by contributing nations, and they obtain their reserve asset power from the commitments
of the IMF member states to hold and honor them for payment of balances.
Special Drawing Rights were created in 1969 in support of the Bretton Woods system of fixed
exchange rates to alleviate the shortage of U.S. dollar and gold reserves in the expansion of
international trade.[1] The SDR is defined as a weighted sum of contributions of four major
currencies, the euro, the US dollar, the British pound, and the Japanese yen, and is reevaluated
and adjusted every five years, and computed daily in terms of equivalent United States dollars.
The IMF uses SDRs for its monetary unit of account. SDRs are denoted with the ISO 4217
currency code XDR.
Special Drawing Rights are allocated to member states as a low cost alternative to debt financing
for building reserves. Such allocations provide an unconditional liquidity for SDRs. As of
September 2009, total SDR allocations amount to SDR 204 billion.[1] Special Drawing Rights
carry an interest rate that is computed weekly by the IMF. It is paid or received quarterly by the
members for deviations of their SDR holdings from their SDR allocations.
Contents
[hide]
• 1 Creation and function
• 2 Definition
• 3 Interest rate
• 4 Allocations
• 5 Exchange
• 6 Other uses
o 6.1 Banking and finance system support
o 6.2 Reserve currency proposal
• 7 Potential pitfalls as a reserve currency
• 8 See also
• 9 References
• 10 External links
[edit] Creation and function

3. Special Drawing Rights were created by the IMF in 1969, intended to be an asset held in foreign
exchange reserves under the Bretton Woods system of fixed exchange rates.
SDRs were intended to replace gold and silver in large international transactions and provide a
cost-free alternative to member states for building reserves. Under the Bretton Woods system,
the reserves of gold and U.S. dollars proved too limited to support the growth of international
trade and exchange. Thus, SDRs were initially credits that nations with balance of trade
surpluses can draw upon from nations with deficits. However, the creators of the new reserve
asset engaged in long-standing disagreements over the role of this asset, whether it was a form of
money (paper gold) or credit.[2] This resulted in the naming of the asset in a neutral, anodyne
manner. Member nations receiving SDR allocations were expected by the reconstitution
provision of the SDR articles to hold or, if expended, rebuild their SDR allocations. Therefore,
the SDR had initially the character of credit or a debt security. However, as the reconstitution
provisions were dropped in 1981, the function of the SDR assumed the character of money.[2]
As the SDR is used as a unit of account by the IMF and several other international organizations,
it is sometimes referred to as a quasi currency.[3]
A few countries peg their currencies against SDRs, and it is also used to denominate some
private international financial instruments. For example, the Warsaw convention, which
regulates liability for international carriage of persons, luggage or goods by air, uses SDRs to
value the maximum liability of the carrier.
In the eurozone, the euro is displacing the SDR as a basis to set values of various currencies,
including Latvian lats. This is a result of the ERM II convergence criteria which now apply to
states entering the European Union.
In Japan, JETRO and others are using the SDR to calculate official development assistance
(ODA) aid.
After the collapse of the Bretton Woods system in the early 1970s, the SDRs has taken on a far
less important role.[4]
The SDR was suggested as a solution to the Triffin dilemma,[2] which showed a dichotomy
between sufficient market liquidity and confidence in the continuing value of the US dollar.[2]
The SDR would be an asset that had sufficient liquidity to support a workable foreign exchange
reserves system.[citation needed]
The Triffin dilemma suggested that a well-functioning system would require liquidity, and
liquidity would demand many US dollars--the US was the world's reserve center in 1960, the
time of Triffin's analysis--and the deficit necessary for there to be many dollars.[2] This deficit
would eventually devalue the dollar,[2] and in fact prior to the early 1970s the US was reluctant to
run such a deficit.[5]
[edit] Definition

4. In 1969 one SDR was initially defined as having a value of 0.888671grams of gold, the value of
one US dollar at that time.[1] After the breakdown of the Bretton Woods system in the early
1970s, the SDR was redefined in terms of a basket of currencies.[5][6] Today, this basket is
composed of the Japanese yen, the US dollar, the British pound and the euro. Upon the
introduction of the euro in 1999, it replaced the Deutsche mark and the French franc in the SDR
valuation. The weight of each currency in the definition is determined by the IMF Executive
Board in accordance with the relative importance of the currency in international trade and
finance every five years.[1] Special Drawing Rights are assigned the ISO 4217 currency code
XDR.
For the period of 2006-2010, one SDR was the sum of 0.6320 US Dollars, 0.4100 euro, 18.4
Japanese yen and 0.0903 pound sterling. Effective 1 January 2011, the IMF has determined that
the four currencies that meet the selection criterion for inclusion in the SDR valuation basket will
be assigned revised weights based on their roles in international trade and reserves.[7]
Due to varying exchange rates, the relative value of each currency varies continuously and thus
the SDR value fluctuates. The IMF fixes the value of one SDR in terms of US dollars daily,
based on the exchange rates of the constituent currencies, as quoted at noon at the London
market. If the London market is closed, New York market rates are used, and if both markets are
closed, European Central Bank reference rates are used. The latest U.S. dollar valuation of the
SDR is published on the International Monetary Fund web site.[8]
Composition of 1 SDR[9][nb 1]
Period USD DEM FRF JPY GBP
1981– 0.460 0.740 0.0710
0.540 (42%) 34.0 (13%)
1985 (19%) (13%) (13%)
1986– 0.527 1.020 0.0893
0.452 (42%) 33.4 (15%)
1990 (19%) (12%) (12%)
1991– 0.453 0.800 0.0812
0.572 (40%) 31.8 (17%)
1995 (21%) (11%) (11%)
1996– 0.446 0.813 0.1050
0.582 (39%) 27.2 (18%)
1998 (21%) (11%) (11%)
Period USD EUR JPY GBP
0.2280 0.1239
1999– 0.5820 (21%) (11%) 0.1050
27.2 (18%)
2000 (39%) (11%)
= 0.3519 (32%)[10]
2001– 0.5770 0.0984
0.4260 (29%) 21.0 (15%)
2005 (45%) (11%)

5. 2006– 0.6320 0.0903
0.4100 (34%) 18.4 (11%)
2010 (44%) (11%)
0.6600 12.1000 0.1110
2011–[7] 0.4230 (37.4%)
(41.9%) (9.4%) (11.3%)
1. ^ relative compositions expressed in per cent are rounded.
[edit] Interest rate
Special Drawing Rights carry a weekly determined interest rate.[1] The rate is based on a
weighted average of the representative short-term rates in the money markets of the base
currencies. The SDR interest rate is paid by the IMF members on any shortfall of SDR
subscriptions below their cost-free allocation, and on non-concessional IMF loans. The IMF pays
its members the interest rate on the fraction of their SDR subscriptions that is above their
allocation quota.[1]
[edit] Allocations
Special Drawing Rights are allocated to member nations by the IMF. A nation's IMF quota, the
maximum amount of financial resources that it is obligated to contribute to the fund, determines
its allotment of SDRs.[1] SDR allocations are officially authorized by the G-20 conferences.[1]
Allocations are not made on a regular basis and have only occurred on several occasions. They
began in 1970 in yearly installments, creating an initial pool of SDR 9.3 billion by 1972. This
first round took place due to the possibility of an insufficient amount of US Dollars, as the US
was reluctant to run the deficit necessary to supply future demand.[2]
While this situation was soon reversed,[5] the situation of the dollar during the late 1970s led to
another round of allocations from 1979 to 1981 allocation.[11] This second series of installments
brought the total to 21.4 billion by 1981. Since then, up to the 2008 banking crisis, no new
allocations took place. On 2 April 2009, the G-20 authorized the issuance of $250 billion in new
SDRs to augment the foreign reserves of IMF members and quickly channel resources into
emerging economies.[12] Increases in the reserves of some emerging economies will be
substantial, e.g., South Korea’s will grow by $3.4 billion, India’s by $4.8 billion, Brazil’s by $3.5
billion, Russia’s by $6.9 billion and China's by $7.3 billion.[13]
Date Amount
1970-1972[5] SDR 9.3 billion
1979–1981 SDR 12.1 billion
April 2, 2009[14] SDR 250 billion

6. September 9, 2009[sa 1] SDR 21.4 billion
1. ^ A special allocation of SDRs was issued on Sep. 9, 2009, to nations that joined the IMF after
1981 and so had never been allocated any.[14]
[edit] Exchange
The IMF acts as an intermediary in the voluntary trading of Special Drawing Rights[1] and has the
authority to order nations with strong foreign exchange reserves to purchase SDRs from nations
with weak reserves.[1] But the claim to foreign currency that SDRs represent is not a claim on the
IMF,[1] and it is not the IMF that pays out foreign currency in exchange for SDR.
[edit] Other uses
SDR are used as the unit of account for the IMF and several other international organizations,[1]
such as JETRO and the Universal Postal Union.[citation needed]
SDR-denominated accounts are, in general, not available from commercial banks.
In some international treaties and agreements, SDR are used to value penalties, charges or prices,
as is the case with the Convention on Limitation of Liability for Maritime Claims, where
personal liability for damages to ships are capped at SDR 330,000.[15] The Warsaw convention,
the Montreal Convention and other treaties also use SDRs in this way.[citation needed]
A few countries peg their currencies to the SDR.[16]
It has been suggested that having holders of US dollars convert dollars into SDRs would allow
diversification away from the dollar without accelerating the decline of the value of the dollar.[17]
[18]
[edit] Banking and finance system support
The African Development Bank's own unit of account, the Units of Amount (UA), equals the
SDR currency basket. The Islamic Development Bank (IsDB), uses the Islamic Dinar (ID) as a
currency. Since the inception of the IsDB, one ID has been set equal to one SDR.
[edit] Reserve currency proposal
In late March 2009 Zhou Xiaochuan, governor of the People's Bank of China proposed using the
SDR as a worldwide reserve currency in place of the dollar as a way to cope with the multitude
of problems associated with the US dollar and the euro being used as world reserve currencies.[19]
[20][21][22]
However, independent economists point out that the SDR is unlikely to emerge as an
alternative reserve currency in the foreseeable future.[23] A few of them argue that China's
proposal may be motivated by political, rather than economic, considerations.[24]

7. [edit] Potential pitfalls as a reserve currency
There are potential pitfalls that may preclude the SDR from being a global reserve currency. The
US dollar, the euro and the pound sterling are contained in the SDR—these currencies have been
losing value against a larger basket of other currencies since the late 2000s recession started in
2007. The SDR does not contain the Chinese yuan, Indian rupee, Australian dollar or Canadian
dollar, which have important international status being widely held. No facilities exist for global
SDR banking support for individuals and businesses. The possible loss of national sovereignty of
the nations involved is a concern.[25]
Other important externalities have been occasionally cited by economists.[citation needed] China &
India's precious metal foreign exchange reserve holdings are not equivalent in size to those of the
US with respect to SDR conversion. The gulf states have precious metal reserves that are
potentially undersized. Many other nations that could move over to the SDR also have too small
precious metal foreign exchange reserve assets.
Special Drawing Rights (SDRs)
March 31, 2011
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member
countries' official reserves. Its value is based on a basket of four key international currencies,
and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that
took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs
increased from SDR 21.4 billion to SDR 204 billion (equivalent to about $324.1 billion,
converted using the rate of March 31, 2011).
The role of the SDR
The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate
system. A country participating in this system needed official reserves—government or central
bank holdings of gold and widely accepted foreign currencies—that could be used to purchase
the domestic currency in foreign exchange markets, as required to maintain its exchange rate.
But the international supply of two key reserve assets—gold and the U.S. dollar—proved
inadequate for supporting the expansion of world trade and financial development that was
taking place. Therefore, the international community decided to create a new international
reserve asset under the auspices of the IMF.
However, only a few years later, the Bretton Woods system collapsed and the major currencies
shifted to a floating exchange rate regime. In addition, the growth in international capital markets

8. facilitated borrowing by creditworthy governments. Both of these developments lessened the
need for SDRs.
The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the
freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in
exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges
between members; and second, by the IMF designating members with strong external positions
to purchase SDRs from members with weak external positions. In addition to its role as a
supplementary reserve asset, the SDR, serves as theunit of account of the IMF and some other
international organizations.
Basket of currencies determines the value of the SDR
The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which,
at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods
system in 1973, however, the SDR was redefined as a basket of currencies,today consisting of
the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-equivalent of the SDR is
posted dailyon the IMF’s website. It is calculated as the sum of specific amounts of the four
basket currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day
in the London market.
The basket composition is reviewed every five years by the Executive Board, or earlier if the
Fund finds changed circumstances warrant an earlier review, to ensure that it reflects the relative
importance of currencies in the world’s trading and financial systems. In the most recent review
(in November 2010), the weights of the currencies in the SDR basket were revised based on the
value of the exports of goods and services and the amount of reserves denominated in the
respective currencies that were held by other members of the IMF. These changes become
effective on January 1, 2011. The next review will take place by 2015.
The SDR interest rate
The SDR interest rate provides the basis for calculating the interest charged to members on
regular (non-concessional) IMF loans, the interest paid to members on their SDR holdings and
charged on their SDR allocation, and the interest paid to members on a portion of their quota
subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of
representative interest rates on short-term debt in the money markets of the SDR basket
currencies.
SDR allocations to IMF members
Under its Articles of Agreement (Article XV, Section 1, and Article XVIII), the IMF may
allocate SDRs to member countries in proportion to their IMF quotas. Such an allocation
provides each member with a costless, unconditional international reserve asset on which interest
is neither earned nor paid. However, if a member's SDR holdings rise above its allocation, it
earns interest on the excess. Conversely, if it holds fewer SDRs than allocated, it pays interest on

9. the shortfall. The Articles of Agreement also allow for cancellations of SDRs, but this provision
has never been used. The IMF cannot allocate SDRs to itself or to other prescribed holders.
General allocations of SDRs have to be based on a long-term global need to supplement
existing reserve assets. Decisions on general allocations are made for successive basic periods of
up to five years, although general SDR allocations have been made only three times. The first
allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72, and the second
allocated SDR 12.1 billion, distributed in 1979-81. These two allocations resulted in cumulative
SDR allocations of SDR 21.4 billion.
To help mitigate the effects of the financial crisis, the third SDR allocation of SDR 161.2 billion
was made on August 28, 2009The Fourth Amendment to the Articles of Agreement became
effective August 10, 2009 and was implemented September 9, 2009. It provided for a special
one-time allocation of SDRs and doubled cumulative SDR allocations to SDR 42.8 billion. The
2009 general and special SDR allocations together raised total cumulative SDR allocations to
about SDR 204 billion. The purpose of the Fourth Amendment was to enable all members of the
IMF to participate in the SDR system on an equitable basis and correct for the fact that countries
that joined the IMF after 1981—more than one fifth of the current IMF membership—never
received an SDR allocation until 2009.
Buying and selling SDRs
IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to
sell SDRs in order to adjust the composition of their reserves. The IMF may act as an
intermediary between members and prescribed holders to ensure that SDRs can be exchanged for
freely usable currencies. For more than two decades, the SDR market has functioned through
voluntary trading arrangements. Under these arrangements a number of members and one
prescribed holder have volunteered to buy or sell SDRs within limits defined by their respective
arrangements. Following the 2009 SDR allocations, the number and size of the voluntary
arrangements has been expanded to ensure continued liquidity of the voluntary SDR market. The
number of voluntary SDR trading arrangements now stands at 32, including 19 new
arrangements since the 2009 SDR allocations.
In the event that there is insufficient capacity under the voluntary trading arrangements, the Fund
can activate the designation mechanism. Under this mechanism, members with sufficiently
strong external positions are designated by the Fund to buy SDRs with freely usable currencies
up to certain amounts from members with weak external positions. This arrangement serves as a
backstop to guarantee the liquidity and the reserve asset character of the SDR.
SDR Interest Rate Calculation

10. For the week of April 11, 2011 to April 17, 2011
Currency
Currency amount
under Rule O-1
(A)
Exchange rate
against the SDR 1
(B)
Interest rate 2
(C)
Product
(A) x (B) x (C)
Euro
0.4230
0.904167
1.0555
0.4037
Japanese Yen
12.1000
0.00737519
0.1100
0.0098

11. Notes:
(1) SDR per currency rates are based on the representative exchange rate for each currency.
(2) Interest rate on the financial instrument of each component currency in the SDR basket,
expressed as an equivalent annual bond yield: three-month Eurepo rate; three-month
Japanese Treasury Discount bills (effective February 5, 2009, replacing the thirteen-week
Japanese Government financing bills); three-month UK Treasury bills; and three-month US
Treasury bills.
(3) IMF Rule T-1(b) specifies that the SDR interest rate for each weekly period commencing each
Monday shall be equal to the combined market interest rate as determined by the Fund.
Under IMF Rule T-1(c), the combined market interest rate is the sum, as of the Friday
preceding each weekly period, rounded to the two nearest decimal places, of the products
that result from multiplying each yield or rate listed above by the value in terms of SDRs of the
amount of the corresponding currency specified in Rule O-1. If a yield or rate is not available
for a particular Friday, the calculation shall be made on the basis of the latest available yield or
rate.
Prepared by the IMF Finance Department
Disclaimer
The International Monetary Fund makes no warranties, express or implied, regarding these tables
or the performance of this site. The Fund shall not be liable for any losses or damages incurred in
connection with this site.
SDR Valuation
The currency value of the SDR is determined by summing the values in U.S. dollars, based
on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese
yen, and pound sterling). The SDR currency value is calculated daily (except on IMF
holidays or whenever the IMF is closed for business) and the valuation basket is reviewed
and adjusted every five years.
Currency Amounts in New Special Drawing Rights (SDR) Basket
Wednesday, April 13, 2011
Currency Currency amount Exchange rate 1 U.S. dollar Percent change in
under Rule O-1 equivalent exchange rate against
U.S. dollar from previous

12. calculation
Euro 0.4230 1.45080 0.613688 0.311
Japanese yen 12.1000 84.06000 0.143945 0.262
Pound sterling 0.1110 1.62710 0.180608 0.055
U.S. dollar 0.6600 1.00000 0.660000
1.598241
U.S.$1.00 = SDR 0.625688 2 -0.149 3
SDR1 = US$ 1.59824 4
Notes:
(1) The exchange rate for the Japanese yen is expressed in terms of currency units per U.S. dollar;
other rates are expressed as U.S. dollars per currency unit.
(2) IMF Rule O-2(a) defines the value of the U.S. dollar in terms of the SDR as the reciprocal of the
sum of the equivalents in U.S. dollars of the amounts of the currencies in the SDR basket,
rounded to six significant digits. Each U.S. dollar equivalent is calculated on the basis of the
middle rate between the buying and selling exchange rates at noon in the London market. If
the exchange rate for any currency cannot be obtained from the London Market, the rate shall
be the middle rate between the buying and selling exchange rates at noon in the New York
market or, if not available there, the rate shall be determined on the basis of euro reference
rates published by the European Central Bank.
(3) Percent change in value of one U.S. dollar in terms of SDRs from previous calculation.
(4) The reciprocal of the value of the U.S dollar in terms of the SDR, rounded to six significant
digits.
Prepared by the IMF Finance Department
Disclaimer
The International Monetary Fund makes no warranties, express or implied, regarding these tables
or the performance of this site. The Fund shall not be liable for any losses or damages incurred in
connection with this site.