Which of the following is a characteristic of the 'Speculative Attack' models of currency crises?
A. Crises occur only gradually
B. A fixed exchange rate may collapse suddenly when reserves reach a critical threshold
C. Reserves never matter
D. Only current-account deficits cause crises
Answer: Option B
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.
Explanation:
The informal sector is characterised by easy entry, small-scale operations, labour-intensive technology, lack of formal contracts and limited regulation.
Explanation:
As per the Monetary Policy Framework Agreement, the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.
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