When a country's ability to maintain its fixed exchange rate is doubted by investors:
A) it may fall under a speculative attack.
B) the exchange rate is likely to spiral upward, out of control.
C) the value of its currency tends to appreciate too quickly.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

When a country's ability to maintain its fixed exchange rate is doubted by investors, it may fall under a speculative attack. Investors start selling the country's currency, leading to further depreciation and making it difficult for the country to defend its fixed exchange rate.

When a Country's Ability to Maintain Its Fixed Exchange Rate