A Balance of Payments Crises Under Fixed Exchange Rates Occurs

question 18

Multiple Choice

A balance of payments crises under fixed exchange rates occurs when

• A) marginal returns on foreign exchange investments approach zero.
• B) a country runs out of foreign reserves.
• C) a country is in a liquidity trap.
• D) forward currency markets undergo high volatility.
• E) exports and imports expand beyond some point.

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Definitions:

Solidification

The process in which magma cools and hardens into solid rock, with or without the formation of crystals.

Meteorites

Solid pieces of debris from objects such as asteroids or comets that have survived their passage through the Earth's atmosphere and landed on the surface.

Sedimentary

relating to rock that has formed from sediment deposited by water, wind, or ice.

Igneous

Refers to rocks or minerals that solidified from molten or partly molten material, indicative of volcanic processes.