Persistent,large current account deficits are often associated with currency crises for floating rate currencies in which the currency with the crisis ________ substantially.

Question

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Persistent, large current account deficits indicate that a country is spending more on imports than it is earning from exports. This places downward pressure on the country's currency, leading to its depreciation. A depreciating currency can lead to a currency crisis, where investors lose confidence in the currency and sell off their investments, further driving down its value. Therefore, the best choice is C, which indicates that the currency devalues or depreciates.

Persistent,large Current Account Deficits Are Often Associated with Currency Crises