Which of the following is correct?
A) The likelihood of an exchange rate crisis increases if a country is having a banking crisis.
B) The likelihood of an exchange rate crisis decreases if a country is having a banking and default crisis.
C) There is no relationship between an exchange rate crisis and banking or default crises.
D) When a banking or default crisis occurs, countries typically are forced to appreciate their currencies.

Question

Quizplus · Accepted Answer

When a country is having a banking crisis, it often causes a decrease in confidence in the country's financial system. This can lead to a decrease in demand for the country's currency, which can result in a depreciation of its exchange rate. As a result, a banking crisis can increase the likelihood of an exchange rate crisis.

Which of the Following Is Correct