If another global financial crisis happens in the near future, which of the following

Explanation

(1). The Short-term debts have to be returned at a shorter interval. This renders an economy vulnerable if the economy is already facing economic crisis as it has an obligation to return the debt as well as interest payments (debt service). Example: Many economies like Mexico, Argentina etc who faced crisis were seen to have borrowed large amounts of short-maturity debt. So, the ideal scenarios is not to depend upon short-term debt during crisis. (2). Opening up to the foreign banks and depending upon them is not a good idea during crisis. It has been empirically observed in World Bank Research that in many cases (like during Global Financial Crisis 2007-08) that foreign banks reduced their lending during crisis. Many of them choose to retreat from cross-border banking in general, including through cutting back on new entry. (3) Capital account convertibility would mean that there is no restriction on conversion of the domestic currency into a foreign currency. It is recognised that capital flows are sensitive to macroeconomic conditions. Any deterioration in fiscal conditions, inflation management, balance of payments, or any other economic crisis may cause a cessation or reversal of capital flows. This might make the economy vulnerable if it already suffering from economic crisis. Therefore, the correct answer is (a).