Consider the case of a developing economy with a recently privatized banking sector.

Explain how a weakened banking sector (extremely low bank capital), rising foreign interest rates (The Federal Reserve has raised interest rates 17 times from a low of 1% in June 2013 to 5.25% in June 2016.), and Asymmetric Information can contribute to the onset of both a currency and financial crisis.

Questions:

1. Once a crisis occurs, what action should a lender of last resort take?