The problem of currency mismatch of net external wealth can be mitigated by:
A) ensuring the creditor countries always denominate loans in U.S. dollars.
B) promoting internal financial markets where foreign securities can be traded.
C) restricting borrowing yet encouraging lending.
D) piling up large stocks of foreign currency assets in central bank reserves and sovereign wealth funds.

Question

Quizplus · Accepted Answer

Piling up large amounts of foreign currency assets in central bank reserves and sovereign wealth funds can help offset the currency mismatch of net external wealth. This provides a buffer against sudden changes in the foreign exchange rates and can help maintain currency stability. However, it is important to note that this approach may not address the underlying issues causing the currency mismatch, such as borrowing to fund consumption rather than productive investments.

The Problem of Currency Mismatch of Net External Wealth Can