Which of the following is an argument of opponents of devaluations?
A)Devaluations cause relatively slow adjustments.
B)Participants in foreign exchange markets have a short memory: if the expected devaluation doesn't occur within a short time-period, they will stop expecting it.
C)A devaluation causes a nation with fixed exchange rates to lose credibility in the medium run, driving its interest rate higher.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

Devaluations under a fixed exchange rate system can indeed lead to a loss of credibility for the country's monetary policy, which in turn can cause investors to demand higher interest rates to compensate for the increased risk of holding that country's currency or debt.

Which of the Following Is an Argument of Opponents of Devaluations