financing riskier and riskier projects. This trend continued until the mid-90s. During this time, TIMPSK debt rose fast, with debt-to-GDP ratios exceeding 150%. In 1994, China devalued its Yuan by almost 30%, significantly reducing TIMPSK's competitive advantage and their exports. At the same time, the US was finally coming out of its economic recession, and the US interest rates were beginning to rise while the USD was strengthening. The increase in the US interest rates provided foreign investors with an alternative. As it became clearer that TIMPSK had borrowed beyond its means, and that this debt was financing assets that were too risky, foreign investors began to redirect their capital away from TIMPSK and towards the US.
The reduction in competitiveness (due to Yuan's depreciation) and the strengthening of the USD meant that TIMPSK currencies were quickly devaluing relative to the USD. To defend their official parities, TIMPSK had to intervene to support their currencies.
Which of the following actions would help TIMPSK restore their official parities?
Answer:
Type one of the following answers: A, B, C, or D
A = TIMPSK sell USD-denominated bonds from their reserves, convert the USD to domestic currencies, and use the domestic currency to buy domestic bonds (which would be held in the reserves)
B = TIMPSK sell USD-denominated bonds from their reserves, convert the USD to domestic currencies, and hold the domestic currency in the reserves
C = TIMPSK sell domestic bonds from their reserves, and buy USD-denominated bonds (which would be held in the reserves)
D = TIMPSK issues new domestic bonds, and use the proceeds to buy USD (which would be held in the reserves)
