ABSTRACT
This chapter explains the possible causes of international financial crises, and efforts by national policymakers to do a better job of predicting and preventing them. It shows the regional differences in global capital market developments and the problems pervasive to financial markets, and financial crises. The chapter provides the difference between portfolio capital flows and foreign direct investment, and the role of these capital flows in recent financial crises. It also illustrates the appropriate exchange-rate regime for developing economies and the main activities of the International Monetary Fund (IMF) and the World Bank. The IMF exists to promote global economic growth by encouraging international monetary cooperation and effective exchange arrangements and to limit the scope for international financial crises by providing temporary and longer-term financial assistance to nations experiencing balance-of-payments difficulties. It demonstrates the aspects of IMF policymaking that have been controversial in recent years and changes in the international financial architecture proposed by economists in recent years.
