Question

Please describe the balance payment crisis and capital. Why are cries in developing countries self-fulfilling?

Answer 1

A BoP crisis, also known as a currency crisis, occurs when a nation can not pay for necessary imports or meet its repayments of foreign debt. This is usually followed by a speedy decline in the value of the currency of the affected country.

This retains the current account and the capital account in 2 parts;

1. Where the current account is the remittance of general exchange and foreign currency and

2. The capital account is international investment in the financial markets of the country

Part of the crisis in developed countries is self-fulfilling, as expectations play a major role here, not because of unhealthy economic conditions, but because of expectations that it will become unsustainable and eventually lead to a financial crisis, as negative expectations for emerging countries are greater as compared with the crisis in developed countries.

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