A crisis caused by sudden capital flight

Question

Quizplus · Accepted Answer

Sudden capital flight can lead to a crisis as it can cause a depletion of foreign reserves, a sharp depreciation in the currency, and rising interest rates. However, the crisis can be lessened if investor confidence is increased through policy measures such as fiscal and monetary reforms, improving transparency and accountability, and strengthening institutions. Capital controls and currency devaluation may also be helpful but they have their limitations and potential negative consequences, so increasing investor confidence is a more sustainable solution.

A Crisis Caused by Sudden Capital Flight