What is the second generation model?
The second-generation models consider an interaction between private sector and government behavior that gives rise to several possible outcomes. In principle, the economy’s equilibrium can jump from one outcome to another.
What is the first generation crisis model?
Early first-generation models predict that ongoing fiscal deficits, rising debt levels, or falling reserves precede the collapse of a fixed exchange rate regime. Under these circumstances a currency crisis will not be preceded by persistent fiscal deficits, rising debt levels, or falling reserves.
How does a speculative currency attack work?
A speculative attack on a currency occurs when ‘investors’ believe that the value of a currency is over-valued and therefore, they sell that currency in anticipation of it falling and buy another currency (e.g. sell their holdings of Pound Sterling and buy Euros).
What is Upsc crisis?
A currency crisis involves the sudden and steep decline in the value of a nation’s currency, which causes negative ripple effects throughout the economy. Unlike a currency devaluation as part of a trade war, a currency crisis is not a purposeful event and is to be avoided.
How do you solve currency crisis?
These crises can be caused by several elements, including currency pegs or monetary policy decisions. They can be solved by implementing floating exchange rates or avoiding monetary policies that fight the market rather than embracing it.
What is reverse speculative attack?
We define a reverse speculative attack as a wave of purchases of assets denominated in a domestic currency, by foreign agents betting on the appreciation of that currency. The objective of this paper is to investigate what leads a central bank facing such an attack to abandon its currency peg and revalue its currency.
How do you stop a speculative attack?
The central bank can stop the speculative attack by borrowing enough foreign reserves to buy back its outstanding money supply.
What is data Localisation Upsc?
Data localisation is the practice of storing data on any device that is physically present within the borders of the country where the data is generated. Localisation mandates that companies collecting critical data about consumers must store and process them within the borders of the country.
Which of the following is not included in the assets of a commercial bank in India UPSC 2019?
UPSC Question Deposit is not an asset of a commercial bank, it is a liability of the bank since it has to returned the deposit of customers when demanded in case of saving or current account or on the maturity of the date in case of fixed deposit.
Why is it difficult for a government to avoid a currency crisis?
Why is it difficult for a government to avoid a currency crisis? International investors are easily alarmed by any sign of instability and are quick to sell off currency. Increasing interest rates can lead to an appreciation of the currency.
Why is Mexican peso rising?
The Mexican peso shows high liquidity for three reasons. First, it offers relatively high interest rates that support the carry trade. Secondly, the country’s physical proximity to the United States encourages billions of dollars in commercial activity.
What is speculative trading?
In the world of finance, speculation, or speculative trading, refers to the act of conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain or other major value.