Question

For this activity, you will apply analysis to a real-world scenario by answering questions about the Chapter 9 Closing Case Study: Do Yuan to Buy Some Renminbi? Link to where the case study is - http://www.chegg.com/homework-help/yuan-buy-renminbi-mid-2011-chinese-government-trying-decide-chapter-9-problem-4q-solution-9780132668668-exc

Please read the case study carefully and respond to the following:

1. Research the Chinese Yuan and discuss its importance in the global economy.

2. Looking at China’s current economy, discuss their exchange rate and the impact it has had on the foreign direct investment (FDI) in their country.

3. What restrictions does the government have in place to restrict free trade?

4. Discuss whether the Chinese Yuan is being used more in global transactions.

Answer 1

1.Around 10 to 15 years the Yuan will be at par with USD and will be surpassing EUR as well.It will be equal to EUR as a world reserve currency.Also due to the global crisis of the major currencies,the chinese have been encouraged to speed up in the process of liberlisation so that they are able to achieve the key currency status sooner.

2.China growth did have a major breakout on the asian economies in the cuurent trend but FDI also was on equal pace at a higher level in making the progressive trend of industries and modernising them.It is only the public sector of china which is in the economy and not the private sector.

3.They were allowed to freely trade outside the mainland but they controlled the inflow and outflow of capital between china and rest of the world.In order for banks to be part of the currency trades they needed a clearing and settlement arrangement with a financial instituion supervised by the hong kong monetary authority.

4.Chinese Yuan is the fourth most used in the world currency which is reported as per the global transaction servies SWIFT.In the trade sector the Yuan has has reached almost 9.1% in the value of its credit,strengthening its position.
More than 50% of the Yuan foreign exchange trading is done with other countries like UK,US and singapore which has led to a higher rate foreign exchange transactions.