Under what circumstances will a peg have a longer grace period before investors get nervous and dump the currency?
A) when there is no coordinated effort to attack the currency
B) when there is a lower cost to the economy of maintaining the peg
C) when traders and speculators are spread out and small in size with no common belief about the situation
D) when there is no coordinated effort to attack the currency, a lower cost to the economy of maintaining the peg, and when traders and speculators are spread out and small in size with no common belief about the situation

Question

Quizplus · Accepted Answer

A combination of factors can lead to a longer grace period before investors get nervous and dump a currency. If there is no coordinated effort to attack the currency, there is less likely to be a sudden loss of confidence. If there is a lower cost to the economy of maintaining the peg, the government can more easily defend the peg against speculators. And if traders and speculators are spread out and small in size with no common belief about the situation, there is less likely to be a sudden rush to sell the currency.

Under What Circumstances Will a Peg Have a Longer Grace