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International Finance of RMB vs. USD

The Chinese currency is considered undervalued by many other countries, including the U.S. Prior to July 2005, the Chinese RMB (yuan) was pegged at 8.28 RMB to 1 U.S. dollar. It went off the peg in July 2005 and now the exchange rate is 6.12 RMB to 1 U.S. dollar.

The paper should address the following:

1. Has the RMB appreciated or depreciated since July 2005? Explain.

2. Calculate the percentage change since July 2005.

3. Has the U.S. increased exports to China since July 2005? Explain.

4. Has the U.S. decreased imports from China since July 2005? Explain.

5. Does the change in exchange rates result in U.S. consumers paying more or less for goods imported from China? Explain.

6. Is the RMB fairly valued now relative to the U.S. dollar? Explain.

7. Has the currency of the country you selected appreciated or depreciated relative to the RMB? What is the impact on imports/export? Explain.

8. Should China continue to manage its currency or let it float? Explain.

Solution Summary

The exchange rate between the Chinese yuan (RMB) is compared against the United States dollar (USD). This solution discusses how the exchange rate will be impacted by the costs of imports and exports.