Financial crises became all too common during the 1990s.Each crisis was distinctive but shared the similarities that they
A) involved some form of fixed exchange rate and a heavily reliance on short-term foreign capital.
B) involved some form of floating exchange rate and a heavily reliance on short-term foreign capital.
C) involved some form of fixed exchange rate and a heavily reliance on long-term foreign capital.
D) involved some form of floating exchange rate and a heavily reliance on long-term foreign capital.
E) involved foreign investors losing confidence in governmental commitment to exchange rate stability and less reliance on short-term foreign capital.

Question

Quizplus · Accepted Answer

Financial crises of the 1990s shared the characteristics of involving some form of fixed exchange rate and a heavy reliance on short-term foreign capital. This is because fixed exchange rates make a country vulnerable to fluctuations in the value of its currency, and short-term capital inflows can be quickly withdrawn, leading to a sudden shortage of foreign exchange reserves and other related problems. The crises in Mexico (1994), East Asia (1997-98), Russia (1998) and Brazil (1998-99) all had these characteristics.

Financial Crises Became All Too Common During the 1990s