When the Bundesbank Lowered German Mark Interest Rates in September

question 88

Multiple Choice

When the Bundesbank lowered German mark interest rates in September 1992,

• A) there was a massive sell-off of German marks, requiring intervention to support the value of the mark.
• B) there was a massive sell-off of British pounds, requiring intervention to support the value of the pound.
• C) there was a gradual sell-off of German marks, which avoided the need for intervention to support the value of the mark.
• D) there was a gradual sell-off of British pounds, which avoided the need for intervention to support the value of the pound.

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Definitions:

Spot Exchange Rate

This is the current exchange rate at which two currencies can be exchanged immediately.

Eurocurrency

Currency deposited by national governments or corporations in banks outside their home market, primarily used for lending, borrowing, and investing internationally.

Political Risk

The risk of losing money due to political instability or changes in government policy affecting an investment.

American Options

A type of options contract that allows the holder to exercise the option at any time before the expiration date.