BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A fixed exchange rate system that overvalued the local currency
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A large amount of foreign currency debt
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A precipitous drop in the value of the local currency
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All of the above are common during currency crises
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Detailed explanation-1: -Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises-currency crises, sudden stops, debt crises, and banking crises-and presents a survey of the literature that attempts to identify these episodes.
Detailed explanation-2: -Heavy fluctuations in the stock and foreign exchange market, increase in inflation and unemployment, a downturn of the economy, adverse changes in monetary policy, heavy reliance on foreign investment, and clashes between the two countries causing war are the causes of the currency crises.
Detailed explanation-3: -Common features include capital issues, asset markets crashing, unemployment rising, decrease in GDP per capita, shrink in tax revenue, increase in deficits and debt.
Detailed explanation-4: -A currency crisis is brought on by a sharp decline in the value of a country’s currency. This decline in value, in turn, negatively affects an economy by creating instabilities in exchange rates, meaning one unit of a certain currency no longer buys as much as it used to in another currency.