Under What Circumstances Will a Peg Have a Longer Grace

question 136

Multiple Choice

Under what circumstances will a peg have a longer grace period before investors get nervous and dump the currency?

• A) when there is no coordinated effort to attack the currency
• B) when there is a lower cost to the economy of maintaining the peg
• C) when traders and speculators are spread out and small in size with no common belief about the situation
• D) when there is no coordinated effort to attack the currency, a lower cost to the economy of maintaining the peg, and when traders and speculators are spread out and small in size with no common belief about the situation

---

Definitions:

Hedge Funds

Investment funds that employ diverse, and often more complex, strategies than traditional mutual funds, including the use of leverage, derivatives, and short selling to generate returns.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.

Maintenance Margin

The minimum equity an investor must maintain in a margin account after the purchase has been made, to keep the position open.

Initial Margin

The minimum amount of funds required to open a position in the securities market, used as a deposit to cover some of the credit risk of the counterparty.