Which of the following is a characteristic of the 'Speculative Attack' models of currency crises?
A. A fixed exchange rate may collapse suddenly when reserves reach a critical threshold
B. Only current-account deficits cause crises
C. Reserves never matter
D. Crises occur only gradually
Answer: Option A
Solution (By JKSSB Mock Tests)
First-generation speculative-attack models show that an inconsistent policy mix (e.g., persistent money-financed deficits under a fixed exchange rate) leads to a sudden attack that exhausts reserves and forces abandonment of the peg.
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