Q1. [1] medium thorough-understanding
[mcq] From the mid-1970s onwards, which of the following best describes the chain of events through which the collapse of the Bretton Woods fixed exchange-rate system contributed to a debt crisis in many developing countries?
(A) Floating exchange rates lowered the value of oil, reducing export revenues for oil-producing nations and triggering global deflation that hurt developing economies.
(B) After the oil shock, petrodollars were recycled through Western banks as cheap loans to developing nations; when the US raised interest rates, repayments soared and a debt crisis followed.
(C) The IMF immediately stopped lending to developing countries after Bretton Woods collapsed, leaving them without any source of foreign exchange.
(D) Developing nations voluntarily withdrew from international trade to protect their currencies, leading to falling export revenues and mounting debt.
- A Floating exchange rates made currencies worthless, so developing countries stopped trading with industrial nations altogether.
- B Without fixed rates, the IMF and World Bank shut down, leaving developing countries with no source of funds.
- C Developing countries were forced to borrow from Western commercial banks instead of international institutions, leading to periodic debt crises and lower incomes.
- D The US regained confidence as the world's principal currency, causing developing countries to lose export markets.
Generated by claude-sonnet-4-6 · 2026-06-26 15:02 · grounding rag
Model Answer
Option C — Developing countries were forced to borrow from Western commercial banks instead of international institutions, leading to periodic debt crises and lower incomes.
Explanation
The passage (Section 4.4) directly states: "they were forced to borrow from Western commercial banks and private lending institutions. This led to periodic debt crises in the developing world, and lower incomes and increased poverty." Option C matches this exactly. Always quote or closely paraphrase the textbook for MCQs grounded in a passage.