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warnings of a currency crisis

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  1. Answer is 1. I got this correct b/c I assumed that reasons 2 and 1 are what happens during a currency crisis. I realize I am wrong because the cfa textbook says “The ratio of exports to imports (known as “the terms of trade”) often deteriorates before a crisis.” - page 572. so why isn’t statement 1 correct. 

    btw the justification given for why statement 1 is not correct is b/c “C is incorrect because Statement 1 is inaccurate. The trade balance displays no significant difference between its behavior in pre-crisis periods and in tranquil periods”  totally confused. 
     

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any ideas anybody 

Hi,

I find the following summary very useful:

http://www.analystnotes.com/study_los.php?id=2078&action=5

And probably the wording finally matters - “often deteriorate before the crisis” is not equal to “exhibit substantial decline before the crisis”.

Given their justification “C is incorrect because Statement 1 is inaccurate. The trade balance displays no significant difference between its behavior in pre-crisis periods and in tranquil periods”

I believe it is taken from an old or outdated material because it is stated in CFAI that terms of trade will deteriorate.

Cordially,

Ahmed