CATTI Level 2

Practice session

Passage: 'When monetary authorities embark on rapid interest rate tightening to suppress demand-driven inflation, capital flows swiftly reverse from emerging markets toward dollar-denominated assets. This dynamic precipitates currency depreciation in developing economies, amplifying the cost of servicing external sovereign debt denominated in foreign currency.' According to the passage, what is an immediate consequence of interest rate hikes in developed markets for developing economies?

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