A Balance of Payments Crises Under Fixed Exchange Rates Occurs

question 73

Multiple Choice

A balance of payments crises under fixed exchange rates occurs when

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

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Definitions:

Futures Contracts

Standard legal contracts for purchasing or selling a certain commodity or financial instrument at an agreed upon price at a future date.

Financial Risk

The possibility of losing money on an investment or business venture due to factors like market volatility or borrower default.

Iron Ore

A rock from which metallic iron can be economically extracted.

Copper

A metal element with high thermal and electrical conductivity, widely used in electrical wiring and construction.