A Fixed Exchange Rate System Crisis May Be Accompanied or Followed

question 2

Multiple Choice

A fixed exchange rate system crisis may be accompanied or followed by

• A)unexpected gains of international reserves.
• B)revaluation of a currency.
• C)devaluation of a currency.
• D)deflationary pressures within the country.

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Definitions:

Government Bond

A type of investment where an investor loans money to a government in exchange for periodic interest payments plus the return of the bond's face value at maturity.

Moral Hazard

The situation where one party in a transaction has the opportunity to take risks because they know the other party will bear the costs.

Portfolio's Risk

Portfolio's risk is the level of uncertainty associated with the returns on a collection of assets held by an investor.

Stocks

Financial instruments representing ownership shares in a company, entitling holders to a portion of the company's profits.