This questions is based on the article, For the first time, Lebanon defaults on its debts, published
Question:
This questions is based on the article, "For the first time, Lebanon defaults on its debts," published by The Economist on March 12, 2020. The article discusses Lebanon's default on its euro-denominated debt on March 9, 2020, following months of currency crisis.
(a)According to the article, what were the reasons why the central bank of Lebanon had been accumulating foreign currency debt for years? [12]
(b)According to the article, the central bank of Lebanon was borrowing from commercial banks at above world market interest rates. Can the interest parity condition explain why the central bank had to pay interest rates above the interest rates paid by central banks in other countries? [10]
(c)According to the article, why was the Lebanese pound losing its value vis--vis the dollar in the black market? [8]
(d)According to the article, there has been a "boomlet in luxury goods" in Lebanon. Why would people want to buy luxury goods in the middle a currency and financial crisis? [9]