Which of the following statements is true about financial crises?
A) Defaults on bank loans reduce lending and investing, thus hampering economic growth.
B) Currencies appreciate to offset losses in the financial markets.
C) High short-term debt to international reserves ratios protects the country's currency.
D) Stock markets rise.
E) All of these are true.

Question

Quizplus · Accepted Answer

Defaults on bank loans reduce lending and investing, which leads to a contraction in the economy. Currencies may depreciate in response to financial crises. High short-term debt to international reserves ratios make a country vulnerable to a sudden capital flight, which can lead to currency devaluation. Stock markets usually decline during financial crises.

Which of the Following Statements Is True About Financial Crises