Generally, which of the following is the most common reason why countries that experienced a financial crisis could not maintain their fixed exchange rate?
A)They were exporting too many commodities.
B)The rates they had established were not in accordance with directives from the IMF.
C)The exchange rate parities established were inconsistent with their corresponding macroeconomic policies.
D)The general public refused to participate.
E)The parities established made their currencies undervalued.

Question

Quizplus · Accepted Answer

The exchange rate parities established were inconsistent with their corresponding macroeconomic policies. This is the most common reason why countries that experienced a financial crisis could not maintain their fixed exchange rate. In simple terms, the exchange rate fixed by a country does not match the fundamental economic conditions of the country, which makes it unsustainable in the long run. For example, a country with a weak economy that fixes a high exchange rate would find it difficult to maintain the exchange rate in the long run as their economy is not strong enough to support it.

Generally, Which of the Following Is the Most Common Reason