Chnese Yuan Case

Nombres: Angel Tejada katja Haas

1. Evaluate the three choices that china faces in determining what to do with is currency
value. Which choice would you choose , and why?
a) widening the trading band: Allowed margins rate in the exchange variation it's a provisional
solution to decrease the market pressure (USA overcoat) by the surplus in commercial balance. The
advantage is stabilize the exchange rate in medium term, this is helpful to China to keep the
economic stability but is bad for international market relations.
b) Pegging the Yuan to a bigger basket: China can control his currency and offer more exchange
rate options through partially dissociate itself from the dollar, this can be the beginning of a
monetary politics more flexible and adaptable to international market an get higher Yuan.
c) Letting the Yuan float: leading the market to fix the value of currency its a very risk option
because there is no option to control the Yuan volatility and this can generate an internal economy
mess.
I will choose the second option, to keep the competitiveness between one coin and other (dollar,
euro, Yuan, won) , achieving a economic and commercial world balance, also keeping the good
relations between other economies.

2. On July 23, 2005, China revalued the Yuan by 2.1%.given that the exchange rate was
8,2725 prior to reevaluation look at it today. How much has the Yuan revalued against the
dollar since then? Do you think is enough to take the pressure off China? Why or why not??
The exchange rate today is 6,6729 so Chinese Yuan appreciate by app 19,3364%
We believe that's not enough to take off the pressure to china because Chinese exportation are just
the 10% of all USA importations , a revaluation to take off pressure must be considerable to make
impact to USA importations.

3.Using table 10.1 (p.371), which exchange-rate arrangement is China using now? be sure to
read the footnotes .
Crawling pegs: the country make the afford to keep the currency value within a very close margin
but can change the value of currency if it's necessary, thereby attempt to maintain the value of
currency but this depends of the economic world condition change.

4. Assume you are a Chinese exporter. Would you prefer a Chinese export tariff on selected
garment and textile exports as a way to relieve pressure against the Yuan or a revaluation of
the currency? Why?
would prefer the revaluation of the currency than exercising tariff on select garment and textile
exports, this is because export tariff will be a short term solution which might adversely affect to the
small enterprises
5. China has the largest foreign-exchange reserves in the world at $1.33 trillion by the end of
the second quarter in 2007. This is compared with foreign-exchange reserves of about $165.6
billion in 2000. Why do you think China is reserves have grown so much in less than seven
years? How can that large reserve position help China manage the value of the Yuan? Most
of Chinas foreign-exchange reserves are in U.S dollars, especially U.S treasury bills. if you
were an adviser to china's central bank, would you recommend china continue that course, or
are there alternatives?
Chinese economic leaders thinks that increasing the value of the Yuan relative to the dollar would
contribute to economic and political instability in china.
China must let the value of its currency by market forces to maintain stability, another option its by
central bank buying and selling a currency to affect the price . yes a will recommend china continue
this course