1 Explain Why Speculating Against A Currency That Is Pegged Unilaterally To A Major 1873375

1. Explain why speculating against a currency that is pegged unilaterally to a major currency like the USD is close to a ‘no-lose’ betting situation. Hint: explain what a speculator is likely to lose/gain in either scenario: (a) a speculative attack fails to materialize; and (b) a speculative attack that succeeds in devaluing the currency.

2. If the Argentine government had simply dollarized instead of erecting a currency board, would a financial crisis have been averted? Discuss.

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