What is the main function of the International Monetary Fund IMF?

Introduction / Context:
The International Monetary Fund, usually called the IMF, is a key global institution in international economics and finance. Many exam questions ask about its main function, and candidates sometimes confuse its role with that of the World Bank or other development institutions. Understanding the primary purpose of the IMF gives clarity about how it supports member countries during external sector stress, currency crises and balance of payments problems.

Given Data / Assumptions:

• The IMF is an international organisation with many member countries.
• The question is about its main function, not every activity it performs.
• Options mention balance of payments, private sector lending, investment loans and deposits.
• We assume a standard textbook view of the IMF role in the global financial system.

Concept / Approach:
The core mandate of the IMF is to promote international monetary cooperation and exchange rate stability and to provide resources to members experiencing balance of payments difficulties. When a country cannot meet its international payment obligations, for example due to a sudden fall in exports or capital outflows, the IMF can lend foreign currency under certain conditions. These loans are usually linked with policy programs designed to restore stability. The World Bank and its affiliates, not the IMF, focus more on long term development and infrastructure projects, which is a key distinction used to eliminate wrong options.

Step-by-Step Solution:
Step 1: Recall that the IMF was created to stabilise the international monetary system after the Second World War. Step 2: Remember that its main financial role is to assist countries facing short term or medium term balance of payments gaps. Step 3: Note that long term project finance is usually associated with the World Bank group rather than the IMF. Step 4: Review the options and focus on which one clearly refers to solving balance of payments problems of member countries. Step 5: Select that option and reject others that describe private sector lending or retail banking, which are not core IMF functions.

Verification / Alternative check:
To verify, consider examples of IMF programs in countries that faced currency crises or external debt pressure. In such cases, the IMF approved standby arrangements or extended fund facility programs that provided foreign currency loans in tranches. These arrangements were conditional on policy reforms in areas such as fiscal discipline, exchange rate policy and monetary policy. The key issue in all such programs is the country balance of payments position, not financing a specific road or power plant. This pattern confirms that helping to solve balance of payments problems is the central operational function of the IMF.

Why Other Options Are Wrong:
Option B is wrong because the private sector lending arm of the World Bank is the International Finance Corporation, not the IMF. Option C describes long term investment loans for development, which is the role of the World Bank and regional development banks. Option D is incorrect as arranging bank deposits and investing in stock markets is not the IMF mandate. Option E is clearly wrong because the IMF does not provide retail banking services to individuals or small firms.

Common Pitfalls:
A common mistake is to treat all international financial institutions as if they have similar roles. Students sometimes mix up IMF and World Bank, thinking both mainly finance projects in developing countries. Another pitfall is focusing only on the surveillance and advisory role of the IMF while forgetting its lending role during crises. Remembering that the IMF is the first responder for balance of payments support, while the World Bank is more project and development oriented, helps avoid confusion in multiple choice questions.

Final Answer:
Help to solve balance of payments problems of member countries by providing short to medium term financial assistance and policy support.