Recall the Application About the Causes of the Argentinean Financial

question 39

Multiple Choice

Recall the Application about the causes of the Argentinean financial crisis to answer the following question(s) . During the late 1980s, Argentina suffered from hyperinflation. As part of its financial reforms, Argentina pegged its currency to the U.S. dollar, making pesos "convertible" into dollars. The financial and other institutional reforms worked well in the early 1990s, but then problems developed. As the dollar appreciated sharply on world markets after 1995, Argentina began to suffer from a large trade deficit because its currency was pegged to the dollar. Then in 1999, Brazil devalued its currency, putting additional pressure on neighboring Argentina. Eventually, Argentina was forced to default on its international debt in 2002 and freeze bank accounts, and a severe depression ensued.
-According to this Application, during the late 1980s, Argentina pegged its currency to the U.S. dollar. After 1995, the U.S. dollar appreciated sharply on world markets. Since the Argentinean peso was pegged to the U.S. dollar, the appreciation of the dollar essentially caused

• A) a severe revaluation of the peso relative to the dollar.
• B) the peso to also appreciate sharply on world markets.
• C) a sharp devaluation of the dollar relative to the peso.
• D) the peso to appreciate relative to the dollar, but depreciate on world markets.