After a Speculative Attack Has Been Successful, and a Country

question 84

Multiple Choice

After a speculative attack has been successful, and a country is forced to devalue its currency, it is common to see many local business firms driven to bankruptcy. This most commonly occurs because _____.

• A) nobody ever wants to invest in a country that just suffered a devaluation
• B) many local firms took foreign loans (denominated in, say, dollars), and they cannot repay them at the new exchange rate
• C) the WTO forces troubled firms to show profits or make way for new, more efficient firms
• D) local firms cannot compete with their foreign competitors at the new prices after the devaluation
• E) many local firms do not know how to deal with the complicated financial operations involved in a speculative attack

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