Which of the following is true of financial contagion?
A) A crisis always spreads to other countries.
B) It is observed only in foreign exchange markets.
C) It is more likely to be observed if the crisis was anticipated.
D) A crisis does not always spread to other countries.
E) A crisis is confined to Southern Europe.

Question

Quizplus · Accepted Answer

Financial contagion refers to the spread of market disturbances – mostly on the downside – from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows. However, a crisis does not always spread to other countries, as various factors such as economic fundamentals, trade connections, and financial links play a role in determining whether and how contagion occurs.

Which of the Following Is True of Financial Contagion