In a Noncooperative Pegged Situation, When the Home Country Devalues

question 42

Multiple Choice

In a noncooperative pegged situation, when the home country devalues in response to an external shock the:

• A) foreign nation will also devalue, endangering the peg.
• B) home country suffers the entire burden.
• C) resulting depreciation causes a large shift in demand from the foreign nation to the home country, thereby exporting the recession to the foreign nation.
• D) nations agree to switch their peg to the U.S. dollar.

---

Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its financial leverage or equity.

Dividend Payouts

The portion of a company's earnings that is distributed to shareholders in the form of cash or additional shares.

Accounts Receivable

Outstanding payments from customers to a firm for received goods or services that remain unpaid.