The two key factors that trigger speculative attacks on emerging market currencies are ________.
A)deterioration in bank balance sheets and low interest rates abroad
B)deterioration in bank balance sheets and severe fiscal imbalances
C)low interest rates abroad and severe fiscal imbalances
D)low interest rates abroad and rising asset prices

Question

Quizplus · Accepted Answer

Speculative attacks on emerging market currencies are triggered when there is a combination of deterioration in bank balance sheets and severe fiscal imbalances. This can lead to a loss of confidence in the country's ability to repay its debts, causing investors to sell off its currency and triggering a currency crisis. Low interest rates abroad may exacerbate the problem, as investors seek higher returns in emerging markets but can quickly withdraw their investments if the conditions deteriorate. However, low interest rates alone are not usually enough to trigger a speculative attack. Similarly, rising asset prices may attract investors but are not necessarily a direct trigger for a currency crisis.

The Two Key Factors That Trigger Speculative Attacks on Emerging