An advantage of an international lender of last resort is its ability to prevent ________,in which a successful speculative attack on one currency leads to attacks on others; its disadvantage is the problem of ________ if creditors expect to be protected if a crisis occurs.

Question

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An international lender of last resort can help prevent contagion, in which a successful speculative attack on one currency leads to attacks on others, by providing liquidity to the affected country. However, the downside is the risk of moral hazard, where creditors become complacent and take on excessive risk, knowing that they will be protected if a crisis occurs. Option B, C, and D are incorrect because they either use incorrect terminology or do not accurately describe the advantages and disadvantages of an international lender of last resort.

An Advantage of an International Lender of Last Resort Is