After a speculative attack has been successful, and the country is forced to devalue its currency, it is common to see many local business firms driven to bankruptcy.This most commonly occurs because _____.
A)nobody ever wants to invest in a country that just suffered a devaluation
B)many local firms had foreign loans (denominated in, say, dollars), and they cannot repay them at the new exchange rate
C)the WTO forces troubled firms to show profits or make way for new, more efficient firms
D)local firms cannot compete with their foreign competitors at the new prices after the devaluation
E)many local firms do not know how to deal with the complicated financial operations involved in a speculative attack

Question

Quizplus · Accepted Answer

When a country is forced to devalue its currency after a speculative attack, local firms that had foreign loans denominated in stronger currencies (such as dollars) will find it difficult to repay those loans at the new exchange rate. This can lead to bankruptcy as they struggle to meet their debt obligations.

After a Speculative Attack Has Been Successful, and the Country