Explanation:
The US dollar shortage was primarily caused by the fact that non-US banks had built up massive US dollar-denominated assets (such as structural finance products) funded by short-term wholesale US dollar liabilities (like commercial paper and interbank loans). When the crisis hit, these short-term funding markets froze, meaning the effective maturity of their funding shortened dramatically. At the same time, the assets became illiquid and difficult to sell, effectively lengthening their maturity. This severe increase in maturity mismatch led to the acute US dollar shortage.
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A
Depositors initiated a classic run on the banks and converted their domestic deposits to foreign currency
B
The effective maturity of banks’ dollar funding lengthened while their dollar assets shortened, and this decreased their maturity mismatch.
C
The effective maturity of banks’ dollar funding shortened while their dollar assets lengthened, and this increased their maturity mismatch.
D
Banks shifted their portfolios to non-bank assets that included banks’ retail and corporate lending, lending to hedge funds, and holdings of securities ranging from US Treasury and agency securities to structured finance products
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