Part 1: As per Exchange rate policy on 15th March 2015: A.] The recent changes in china’s exchange rate policy as exemplified on 15th March 2014 are:
China made its currency Yuan a much free floating currency by loosening and widening its daily trading limit against U.S dollar. (WSJ, 2014)
The china’s central bank and people’s bank of china set a daily trading rate called the parity rate for Yuan against the U.S.dollar, allowing the widening of the daily trading band to push from its current currency value at 1% to move freely upward or downward by 2% on a daily basis similar to the working of any other major currency (WSJ, 2014)
B.] China has brought about these recent changes in its exchange rate policy because:
a. It wanted to inculcate …show more content…
From a strong investment demand over the years it’s slowing down its investments and enhances household consumption demand to improve economic structure.
5. It helps to improve the cost structures and growing sales in china as well as bringing about a significant impact on its business strategies
6. It works to achieve more balanced economic structure and at the same time gives importance to domestic demand policy.
B.] China changed its exchange rate policy (as per the case):
China has being going through a rough patch with respect to exchange rate regimes. China’s extensive control on the capital movement in and out of the country and a problematic banking sector are some of the reasons that led china to change its exchange rate as identified in the case study. The main reason China is changing its exchange rate policy is because:
1. China will be able to attain Monetary Policy Independence through greater flexibility which will remove hindrance in financial sector reform and restrain other key aspects of the move towards more market oriented economy.
2. China will be able to preserve the communist party legimacy by bringing about a change in the exchange rate policy.
3. China will also be able to pursue financial liberalization to maintain growth with the a change in the exchange rate
China made its currency Yuan a much free floating currency by loosening and widening its daily trading limit against U.S dollar. (WSJ, 2014)
The china’s central bank and people’s bank of china set a daily trading rate called the parity rate for Yuan against the U.S.dollar, allowing the widening of the daily trading band to push from its current currency value at 1% to move freely upward or downward by 2% on a daily basis similar to the working of any other major currency (WSJ, 2014)
B.] China has brought about these recent changes in its exchange rate policy because:
a. It wanted to inculcate …show more content…
From a strong investment demand over the years it’s slowing down its investments and enhances household consumption demand to improve economic structure.
5. It helps to improve the cost structures and growing sales in china as well as bringing about a significant impact on its business strategies
6. It works to achieve more balanced economic structure and at the same time gives importance to domestic demand policy.
B.] China changed its exchange rate policy (as per the case):
China has being going through a rough patch with respect to exchange rate regimes. China’s extensive control on the capital movement in and out of the country and a problematic banking sector are some of the reasons that led china to change its exchange rate as identified in the case study. The main reason China is changing its exchange rate policy is because:
1. China will be able to attain Monetary Policy Independence through greater flexibility which will remove hindrance in financial sector reform and restrain other key aspects of the move towards more market oriented economy.
2. China will be able to preserve the communist party legimacy by bringing about a change in the exchange rate policy.
3. China will also be able to pursue financial liberalization to maintain growth with the a change in the exchange rate