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International Financial System

I am working on my masters and need assistance with the following questions:

1) Some people are arguing that the Chinese Yuan Renminbi (CNY) could take over the US dollar and the Renminbi will become the next reserve currency. Please read the following articles:

Frankel, J. (2011). The rise of the Renminbi as international currency: Historical precedents. Retrieved May, 2012, from http://www.voxeu.org/index.php?q=node/7075

US Department of Treasury (2012). Renminbi as the next reserve currency: Potential, challenges, and implications. Retrieved May, 2012, from https://infocus.credit-suisse.com/data/_product_documents/_articles/342047/Amia_Liu.PDF

Oliver, C. (2012). China's Yuan set for more international role. Retrieved May, 2012, from http://articles.marketwatch.com/2012-01-26/investing/30734300_1_chinese-currency-yuan-currency-policy

Based on your analysis and findings, will Renminbi replace the US Dollar as the world's most popular currencies to hold? Will Renminbi become the next reserve currency? Why? Please explain your reasoning.

2) Is the exchange rate of the Mexican Peso (one of the emerging market currencies) determined in a fixed or in a floating exchange rate system? Please explain your reasoning.

3) Is the exchange rate of the Indian Rupee (one of the emerging market currencies) determined in a fixed or in a floating exchange rate system? Please explain your reasoning.

4) To what extent is the Emerging Market (EM) Currency trading risky? Please explain your reasoning.

5) Based on your analysis and findings, what would you recommend to international market currency investors?

Solution Preview

1) Based on your analysis and findings, will Renminbi replace the US Dollar as the world's most popular currencies to hold? Will Renminbi become the next reserve currency? Why? Please explain your reasoning.

China has started to perform some of their international trade in the Renminbi currency. Further, foreign central banks are now holding the Renminbi currency. The basis for the prediction that the Renminbi will overtake the US dollar because the Chinese currency will overtake the US currency. Further, the Chinese government is actively promoting its currency in the international market (The information was obtained at http://www.voxeu.org/article/rise-renminbi-international-currency-historical-precedents).

China has plans to change their Forex rules and increase the international trade of their currency. China sets the pace of the rise in the currency. If the Yuan rises too fast, the manufacturing sector could become bankrupt. In 2012, the annual gain of Yuan will be 2.7% vs. the US dollar. The Chinese currency will continue to rise despite the weak global export outlook (The information was obtained at http://articles.marketwatch.com/2012-01-26/investing/30734300_1_chinese-currency-yuan-currency-policy).

Despite the budget shortfalls and downgrade of the US economy by the S&P, the US dollar is still the dominate ...

Solution Summary

International financial systems are examined.

$2.19