Assuming that transaction costs are zero, there are no barriers to trade and that Chinese products are identical to British products, would you expect the Yuan to appreciate, depreciate or remain unchanged against sterling if the general price level in China rises faster than that in the UK? Explain your answer.
This is better understood using a numerical example.
Consider computers. A computer is worth 10000 CNY (chinese yuan) in China and 1000 GBP (great britain pound). Here you expect ...
International finance: Would the Chinese Yuan appreciate, depreciate or remain the same