When other emerging market nations experience an exchange rate crisis, it affects healthy emerging market economies (raises risk premiums) because of investor worry. This phenomenon is known as:
A) emerging market dysfunction.
B) the law of like outcomes.
C) experiential judgment.
D) contagion.

Question

Quizplus · Accepted Answer

When an exchange rate crisis in one emerging market spreads to other emerging market economies, it is called contagion. This is because investors become worried about the stability of all emerging markets and may start pulling their investments out of these countries, causing risk premiums to increase.

When Other Emerging Market Nations Experience an Exchange Rate Crisis