A Banking Crisis Often Threatens a Fixed Exchange Rate (Or

Multiple Choice

A banking crisis often threatens a fixed exchange rate (or peg) . Why?

A) Banks have to provide funds to maintain the fixed exchange rate.
B) The central bank may have to bail out insolvent banks by inflating the currency, which could cause a loss of reserves.
C) The central bank has to close relationships with foreign banks, and there is no way to implement the fixed exchange rate system.
D) The banking crisis means that domestic banks hold onto foreign currency reserves rather than exchanging them with the central bank.