A speculative attack on an overvalued currency leads to a(n)________ in international reserves and a(n)________ in the fundamental value of the currency.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

A speculative attack is a massive selling of domestic currency assets by domestic and foreign financial investors. The overvalued currency can only be maintained temporarily as international reserves are decreased. Since the supply of the overvalued currency increase, the fundamental value of the currency will also decrease.

A Speculative Attack on an Overvalued Currency Leads to A(n)________