Argentina's experience in defending its peg after 1994 resulted in all of the following, EXCEPT:
A) an increase in the nominal rate of interest as the risk premium rose because of the Tequila Crisis.
B) a bailout of domestic banks damaged by excessive defaults.
C) domestic investors selling pesos and purchasing assets denominated in U.S. dollars.
D) a significant decrease in the nominal rate of interest as the risk premium rose.

Question

Quizplus · Accepted Answer

The other options all accurately describe the consequences of Argentina's defense of its currency peg after 1994, but option D is incorrect. As the risk premium rose, the nominal interest rate increased to attract investors and prevent capital flight, rather than decreasing.

Argentina's Experience in Defending Its Peg After 1994 Resulted in All