What does a weak currency peg suggest regarding market stability?

A weak currency peg indicates that a country's currency is aligned with another currency at a value that doesn't necessarily reflect its true market value. This situation often arises when a government attempts to maintain a fixed exchange rate despite pressures from the market. Such a peg can lead to uncertainty and risk, as market participants may doubt the sustainability of the pegged rate.

When investors perceive that a currency peg is weak, they may anticipate capital flight. This anticipation arises because investors are concerned that the currency will depreciate or the peg will be abandoned, leading to losses on their investments. Capital flight occurs when investors move their assets out of the country to safeguard their investments or seek better opportunities, which can further destabilize the economy. Therefore, a weak currency peg often signals potential instability, prompting investors to pull out their funds.

While the other options might appear plausible in certain contexts, they do not align with the typical implications of a weak currency peg. For instance, immediate foreign investment or potential for economic growth is less likely, as investors typically seek stability rather than entering a market perceived as unstable. Long-term currency strength is also doubtful under a weak peg, as the market often questions the viability of such a currency alignment.