Question

In the early 90s Argentina adopted a currency board, fixing the peso to the USD. What was the main motivation for this?

to join the United States as a territory

to tame inflation

While inflation fell and stabilized, Argentina ran growing current account deficits through the 90s. What was the primary cause of this?

overvalued real exchange rate

primary export commodity price spike

Which of the following helped created the "perfect storm" for the genesis of Argentina's crisis? (select all that apply)

multiple adverse trade shock

foreign interest rate shock

capital outflow and speculative attack

financial sector instability caused by speculative real estate investment

Answer 1

As we know that, The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed.

1). The correct option is (b).

To tame inflation.

2). The correct option is (a).

Overvalued real exchange rate

There was a severe overvalued real exchange rate.Argentina defaulted and suffered bank runs as the Baring Brothers faced failure. The crisis was caused by the lack of co-ordination between monetary policy and fiscal policy, which ultimately led to the collapse of the banking system.

3). The correct option is (a).&(c).

Multiple adverse trade shock & capital outflow and speculative attack .

Hope you got the answer.

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