Reference no: EM133080120

REFERENCE QUESTIONS

A) Define the following terms from the newspaper extract above, concerning the Chinese yuan:

1) The Chinese Central Bank, Beijing, Peoples Republic of China. November 16, 2017.REUTERS/WEIFANG (an newspaper article from REUTERS)

• China's central bank is reasonably comfortable with the yuan's sharp gains against a dollar that is broadly weakening, but it could become an issue if gains against other currencies affect its export competitiveness, policy insiders and analysts said. The yuan rose nearly 7 percent against the dollar in 2017 and is up another 3.5 percent the year 2018 to its strongest level since August 2015 -when the People's Bank of China (PBOC) stunned markets with a 2 percent devaluation that 'pushed down the value of the yuan'. Still, China posted strong export growth last year, thanks not only to improving demand globally but efforts to diversify its markets beyond the United States.

That push has seen policymakers put a greater emphasis on assessing the yuan's value against a basket of currencies of its trading partners. "It's obvious that they are pegging (the yuan) directly to the basket and that a revaluation of the currency may be imminent," said a source close to the central bank who declined to be identified due to the sensitivity of the matter.

i) Central bank

ii) Pegging

B) Explain two possible consequences of an overvalued yuan.

C) Using information in the text and your knowledge of economics, to what extent do you support the view that China should revalue the yuan?