In first-generation models of currency crises,speculators
A) play no significant role; only the government is to blame
B) initiate the crisis, to which the government must then respond
C) exacerbate the crisis when foreign reserves are depleted to a critical level
D) misinterpret market signals regarding a currency's long run value
E) help to stabilize the currency and prevent the financial system from collapsing

Question

Quizplus · Accepted Answer

Speculators can exacerbate a currency crisis when foreign reserves are depleted to a critical level, as they may then sell off the currency in large amounts, leading to a further decline in its value.

In First-Generation Models of Currency Crises,speculators