When developing countries borrow in international credit markets, many find that they must borrow in currencies other than their own (such as dollars, yen, or euros). Why are international creditors willing to make loans in dollars, yen, or euros but not in the developing countries' currencies?
A) Lenders are not well-informed about developing countries' economic situations.
B) Lenders believe that the currencies of developing countries will always appreciate.
C) Lenders receive higher interest rates on loans in dollars, yen, or euros than on loans made in the currencies of developing countries.
D) Lenders believe that developing countries have a history of weak macroeconomic management and imprudent monetary and fiscal policies.

Question

Quizplus · Accepted Answer

Lenders are concerned about the stability and reliability of developing countries' currencies, often due to their history of weak macroeconomic management and imprudent monetary and fiscal policies. This makes loans in more stable and internationally recognized currencies like dollars, yen, or euros more attractive to lenders.

When Developing Countries Borrow in International Credit Markets, Many Find