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juheeMar 15, 2012 11:43 PM I would like to add something to this foreign exchange related discussion- if 1$=7 yuan and 1$ = 48 it does not mean that indian currency is devaluated. it only implies that for the same item the amount of money that u should spend in different currencies .for eg for 1kg mangoes you need to spend rs48 in if buying in indian currency and 7yuan in chinese currency and 1$ for american currency. this is called purchaing power parity. -it also means that by exchanging 1$ you can 7yuan of 48 rs. now if a currency is devalued it means its value is manipulated. -that is , if chinese govt devaluates its currency then lets say that now you can buy 10yuan for 1$. -If your currency is devalued, your exports will increase bcoz: "because American dude can purchase (import) more mangoes for the given $ 1 note." ( as said above) and also bcoz usually international payments are settled in us$.so when an exporter selles his product and converts the $ in his home currency(which is devalued) he gets more money. -for the same reason imports become costly as you have to pay in us$ (usually) for which now you need to spend more (as now 1$=10yuan) -The Yuans devaluation reduced the cost of Chinese labor and other productive inputs relative to foreign production costs, and thereby reinforced Chinas comparative advantage in labor-intensive industries and strengthened its competitiveness in attracting FDI. Moreover, the devaluation decreased prices of domestic assets such as land, and encouraged foreign firms to acquire them.For a multinational enterprise, especially one engaged in global outsourcing, the wealth and production cost effects induced by the devaluation are simply too large to be ignored. Therefore, it is highly likely that the surge of direct foreign investment in China was partially fueled by the Yuans devaluation. Reply