Why Might a Default Crisis Be Associated with an Exchange

question 73

Multiple Choice

Why might a default crisis be associated with an exchange rate crisis?

• A) A large depreciation causes a sudden decrease in the local currency value of international debts denominated in other currencies.
• B) A government is unable to pay principal or interest on debt owed to banks.
• C) A large depreciation causes a sudden increase in the local currency value of international debts denominated in other currencies.
• D) Banks close or declare bankruptcy.

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