Yuan Floating Rate Discussion

Background: BEIJINGâ€"mainland chinaw atomic number 18 made one of its strongest be actives just to show that it believes the yuan, also known as the renminbi, is ready to do a global currency by loosening free-and-easy trading limits. The move to widen the currencys trading range, which went into pitch Monday, doesnt eliminate Beijings tight grip on the yuan. Chinas central bank still sets a daily fiber rate for its currency. 1. Describe how the rate for the yuan is set by the central bank. (Name the currency exchange rate system.) How does this compare with how the Yen, US$, or Euro is set? The Yuan is set by Chinas central bank through a situated rate system in that the central bank specifies a range in which the Yuan is permitted to float in the exchange. This move shows that this currency may very well become a free float currency in time as china begins to loosen its grip of the Yuan. In comparison, the Yen, US$, and the Euro are free float currencies and the associated central banks with these currencies occasionally intervene in the currency and may attempt to alter interest rate accordingly. Companies and investors are bracing for the expected greater volatility in the yuans exchange rate.

Until recently, most businesses and investors had viewed the yuan as a surefire bet to rise in value, but that view has changed as Chinas trade surpluses have pooh-poohd 2. Why would trade surpluses evince a need for the yuan to rise? Why would their decline now casue the yuan not to rise or up to now fall? Trade surpluses indicate a demand for the Chinese currency causing an appreciation in value, however, when the currency strengthens, the harm of imports into the country decrease but the price of exports increase. If the price of Chinese exports increase then the purchasing of these products and services from other countries may decrease. This may cause a decrease in a trade surplus or even a shortage in the future. However, Nonetheless, the change is seen as an important... If you want to get a full essay, order it on our website: Ordercustompaper.com

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