Exchange Risk Of China Essay

4879 words - 20 pages

CHAPTER 1 INTRODUCTION
1.1 BACKGROUND OF THE COUNTRY
The Socialist market economy of People's Republic of China is the world's second largest economy by nominal GDP and by purchasing power parity after the United States. It is the world's fastest-growing major economy, with growth rates averaging 10% over the past 30 years. China is also the largest exporter and second largest importer of goods in the world. As China's economic importance has grown, so has attention to the structure and health of the economy.
The Renminbi (RMB, sign: ¥; code: CNY) is the official currency of the People's Republic of China. Renminbi is legal tender in mainland China, but not in Hong Kong, Taiwan, or ...view middle of the document...

27 Yuan per USD from 1997 to 2005.

1.2.1 De-pegged from the U.S. dollar
On July 21, 2005, the peg was finally lifted, which saw an immediate one-off RMB revaluation to 8.11 per USD. The exchange rate against the euro stood at 10.07060 Yuan per Euro.
However the peg was reinstituted unofficially when the financial crisis hit: "Under intense pressure from Washington, China took small steps to allow its currency to strengthen for three years starting in July 2005. But China 'repegged' its currency to the dollar as the financial crisis intensified in July 2008.
On June 19, 2010, the People’s Bank of China released a statement simultaneously in Chinese and English indicating that they would "proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility." The news was greeted with praise by world leaders including Barack Obama, Nicolas Sarkozy and Stephen Harper. The PBoC maintained there would be no "large swings" in the currency. The RMB rose to its highest level in five years and markets worldwide surged on Monday, June 21 following China's announcement.
1.2.2 Managed float
The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the U.S. dollar against the RMB in the inter-bank foreign exchange market would be allowed to float within a narrow band of 0.3% around the central parity published by the People's Bank of China; in a later announcement published on May 18, 2007, the band was extended to 0.5%. On April 14, 2012, the band was extended to 1.0%. China has stated that the basket is dominated by the United States Dollar, Euro, Japanese Yen and South Korean Won, with a smaller proportion made up of the British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar.
Beginning in January 2010, Chinese and non-Chinese citizens have an annual exchange limit of a maximum of 50,000 USD. Exchange will only proceed if the applicant appears in person at the relevant bank and presents his passport or his Chinese ID; these deals are being centrally registered. The maximum withdrawal is 10,000 USD per day, the maximum purchase limit of USD is 500 per day. This stringent management of the currency leads to a bottled-up demand for exchange in both directions. It is viewed as a major tool to keep the currency peg, preventing inflows of 'hot money'.
A shift of Chinese reserves into the currencies of their other trading partners has caused these nations to shift more of their reserves into dollars, leading to no great change in the value of the Renminbi against the dollar.
In May 2013, the Yuan reached a record high rate of 6.1276 to the U.S. dollar during intra-day trading Chinese leadership has been raising the Yuan to tame inflation; a step U.S. official have pushed for years to help repair the massive trade deficit with China. On March 8, 2013, earlier the...

Other Essays Like Exchange Risk of China

China To Float Or Not To Float

2675 words - 11 pages others questioned it. Below is a brief description of the various arguments presented on the topic. Political: With the value of the Dollar decreasing over the recent years, the western governments are less pleased with China maintaining its currency at a fixed rate. The US and EU are of the opinion that the quasi-fixed exchange rate gives China a competitive advantage, creating a strain on their import surplus and thereby increasing their trade

Risk Management Essay

4131 words - 17 pages transactions of great complexity. Unfortunately, as the world of business becomes increasingly borderless, risk management becomes, likewise, borderless, and thus more complicated. Risk management strategies that make sense in a domestic environment do not necessarily apply in the international arena, where business is exposed to the additional risks associated with currency prices, exchange rates, and interest rates, as well as more intangible

Finance Trade Speech

1267 words - 6 pages . Examples of products with an import surplus in the U.S. are China’s auto-parts. The U.S. auto-parts industry is at risk of lost jobs because of the rapid growth of auto-parts imported from China. [The Chinese government unfairly subsidizes and trades auto-parts to the U.S.; which in return jeopardizes jobs related to the auto-parts industry in the U.S. The goods that the United States imports are not always negative. American consumers have benefited

Latest Research on Investment Prospective of Automotive Tire Market in China, 2014-2018

1234 words - 5 pages Development Trend and Investment Prospective of Automotive Tire Market in China, 2014-2018 Development Trend and Investment Prospective of Automotive Tire Market in China, 2014-2018 mainly analyzes the market status of automotive tire industry in China, as well as supply & demand, competition landscape, and business performance of major enterprises in China, meanwhile offers suggestions for automotive tire industry, so as to make

International Trade and Finance Paper

1053 words - 5 pages that china can offer compared to the Americas. International trade is a lucrative part of every country’s GDP. There are many different parts to international trade from importing and exporting goods, college exchange students, to outsourcing of jobs. The United States has been running a trade deficit for close to 4 decades. This trade deficit has shown our GDP dropping especially since the mid 1990s. The outsourcing of jobs such as

Security and Portfolio Management

3739 words - 15 pages public in their respective stock markets. Top 10 Companies Rule the roost on the Bourses Almost 29% of the exchange volumes in 2009 were concentrated in the top 10 companies of India. In most other major economies like China, Taiwan, Japan and Korea the same stood below 20% for top 10 companies in their respective countries. Thus, there is still little room for the lagging Indian companies to grow at a higher speed and, consequently, notch

How Is China’s Exchange Rate Policy Linked to Its Development Strategy?

765 words - 4 pages 2. How is China’s exchange rate policy linked to its development strategy? How would changes in exchange rate policy impact growth in China as well as the rest of the world? Is the current exchange rate policy sustainable in the long run? China’s exchange rate policy is linked to its development strategy as China’s gradual transition from a centrally planned economy to a “socialist market economy” was accompanied with major changes in the

Using Foreign Exchange Reserves for Development

1964 words - 8 pages Strict Fiscal Conditionality imposed – Political Costs Issues with India’s Foreign Exchange Reserves- Nature of Reserves China’s Foreign Reserves • Current Account Surplus for most years • Great Risk Taking ability with foreign reserves • Size of Reserves very large Indian Foreign Reserves • Current Account is in deficit and thus, no question of reserves being owned or earned by India • Borrowed assets or volatile in nature • Repayment

How to Control Exchange Rate in Order to Improve Vietnam’s Competitiveness and Trade Balance

2528 words - 11 pages as expensive as a pair of trousers of China, the real exchange rate is ½ pair of trousers of Vietnamese per pair of trousers of China. We have a formula to calculate the real exchange rate: 2. Net exports (NX) or trade balance equals the foreign purchases of domestically produced good (exports) minus the domestic purchases of foreign goods (imports). The net in net exports refers to the fact that imports are subtracted from exports. A

International Management

1284 words - 6 pages .), Oxford Handbook of International Business. Oxford: Oxford University Press. https://www.gov.uk/government/publications/overseas-business-risk-china/overseas-business-risk-china#politics http://www.focus-economics.com/countries/china

Future of Chinese Yuan

647 words - 3 pages promotion of foreign trade, increasing foreign exchange reserves, with the foreign trade system reform .In-depth and rapid growth of exports, to reach large-scale inflow of foreign capital. Under the balance of payments view, appreciation of the RMB is a must. Political pressure The US and China are in dispute over a number of issues, in particular Beijing's currency policy. The disputes have been exacerbated by the widening US trade deficit with

Related Papers

Rise And Risk Of China Essay

1702 words - 7 pages The Rise and Risk of China Introduction Australia has felt the full impact of Chinas “extraordinary economic growth and active diplomacy” (Ikenberry 2011, 23) in East Asia. The power transition of China “becoming a formidable global power” (Ikenberry 2011, 26) is of growing importance to Australia’s economic prosperity and security (Shen 2009, 110). But as relative power begins to shift, the latest defence White Paper released last Friday

China And The Esquel Group Essay

1849 words - 8 pages dictating import quotas on Chinese products. Economically, a fixed exchange rate will continue to plague China by its dependence on exports and increase its risk of being able to maintain the value of its portfolio of foreign reserves, most notably the United States dollar. It is our belief that these risks outweigh the benefits of China continuing business as usual. As such, the Esquel Group should devise operational strategies that mitigate the

The Sextants Of Beijing Essay

1077 words - 5 pages contracts with other civilizations, how China participated in a network of international exchange all around the world.In the book, it started out from the year between 629 through 645, which was the Tang dynasty. In this time, Han China was interested in establishing political and commercial relationships with others through trade. China began to trade silk and gold with Central Asia in regular basis and in return, China imported spices, woolen fabrics

Recent Research On China Ups (Uninterrupted Power Supply) Market, 2014 2018

1002 words - 5 pages Barrier 8.2.3 Talent Barrier 8.2.4 Brand Barrier 8.2.5 Product Certification Barrier 8.3 Investment Risks 8.3.1 Macroeconomic Environment Risk 8.3.2 Weak Technological Base 8.3.3 Cost Fluctuation Of Raw Materials 8.3.4 Market Competition Risk 8.3.5 Exchange Rate And Tax Policy Risk 8.4 Investment Suggestion ResearchMoz(http://www.researchmoz.us/) is the one stop online destination to find and buy market research reports & Industry Analysis. We