Which of the following statements is true about financial crises?
A) The elements of currency, banking, and debt crises do not present themselves simultaneously.
B) A currency crisis forces authorities to hold large volumes of international currency reserves.
C) A foreign debt crisis occurs when a country's foreign debt obligations in private-sector government debt cannot be serviced.
D) A banking crisis occurs when individuals and companies increase their deposits due to increasing interest rates.
E) The International Monetary Fund does not grant loans to countries that face the risks of financial crises.

Question

Quizplus · Accepted Answer

A foreign debt crisis occurs when a country is no longer able to service its foreign debt obligations, which can include both private and government debt. This can lead to a default on the debt or the restructuring of the debt. Currency and banking crises may also be present in a financial crisis, but they are separate phenomena. The IMF does provide loans to countries facing financial crises in order to help stabilize the situation. Holding international currency reserves can be a strategy to manage currency crises, but it is not the only response. Increasing interest rates can lead to a banking crisis if it causes borrowers to default on their loans, but it does not necessarily lead to a banking crisis.

Which of the Following Statements Is True About Financial Crises