1. Discuss the exchange rate arrangements used in EU, Hong Kong, China and the United States?

Expert Solution

Ans.

European Union - In march, 1979, european economic community adopted the European Monetary system, so that exchange rate volatility can be reduced and achieve monetary stability in Europe.. So, they introduced a single currency, Euro which took place on 1 jan, 1999.

Hong Kong - It has linked exchange rate system in which Hong Kong's currency is pegged with US dollar. The exchange rate is stabilized by an exchange rate mechanism, in which the Hong Kong Monetary Authority (HKMA) authorises note-issuing banks to issue new banknotes provided that they deposit an equivalent value of U.S. dollars with the HKMA.

China: China's current exchange rate regime is hybrid of fixed and floating exchange rate. It was fixed exchange rate from 1994 to 2005. In july, 2005, China announced it would revalue the yuan and peg it to a basket of cu rrencies, which among others includes the dollar, the Euro, the Japanese yen, and the Korean won. China deliberately devalues its currency with respect to other currencies in order to promote export growth of their own country.

USA: It has free floaging exchange rate in which government and monetary authorities does not intervene in foreign exchange market. They allows the exchange rate to move freely according to the demand and supply of dollar in international market.

Rahul Sunny answered 1 year ago

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