If foreign investors believe that the Hungarian government will default on their debt,which of the following might happen?

Question

Quizplus · Accepted Answer

If foreign investors believe that the Hungarian government will default on their debt, they will demand higher interest rates to compensate for the increased risk. This will lead to an increase in Hungarian interest rates. Additionally, foreign investors will withdraw their capital, leading to a net capital outflow from Hungary. Overall, this scenario would result in an increase in both Hungarian interest rates and net capital outflow.

If Foreign Investors Believe That the Hungarian Government Will Default