Why Is It Difficult for a Government to Avoid a Currency

question 59

Multiple Choice

Why is it difficult for a government to avoid a currency crisis?

• A)Important companies that have borrowed in foreign currencies can be a powerful lobby in favor of abrupt devaluations of the currency in order to reduce their debts.
• B)Exporters clamor for the government to maintain overvalued exchange rates when the currency should be devalued.
• C)International investors are easily alarmed by any sign of instability and are quick to sell off currency.
• D)In democracies,government officials have to worry about the votes of consumers who would be hurt by overvalued exchange rates.

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