• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

China vs The US Dollar- Managed Float

Extracts from this document...

Introduction

China's Managed Float Assignment 8 Krystle James Benedictine University MBA 539: International Business Tom Yu, Ph.D. March 7, 2011 In 1994 china pegged the value of its currency, the Yuan, to the U.S. dollar at an exchange rate of $1= 8.28 Yuan. For the next 11 years, the value f the Yuan moved in lockstep with the value of the U.S. dollar against other currencies. By early 2005, however, pressure was building for China to alter its exchange rate policy and let the Yuan float freely against the dollar. Underlying this pressure were claims that after years of rapid economic growth and foreign capital inflows, the pegged exchange rate undervalued the Yuan by as much as 40 percent. ...read more.

Middle

Keeping Yuan pegged to the dollar was also becoming increasingly problematic for the Chinese. The trade surplus with the United States, coupled with strong inflows of foreign investment, led to a surge of dollars into China. To maintain the exchange rate, the Chinese central bank regularly purchased dollars from commercial banks, issuing the Yuan at the official exchange rate. As a result, by mid 2005 China's foreign exchange reserves had risen to more than $700 billion. The Chinese were reportedly buying some $15 billion each month in an attempt to maintain the dollar/Yuan exchange rate. When the Chinese central bank issued Yuan to mop up excess dollars, the authorities in were effect expanding the domestic money supply, leading to a growing concern that excessive lending could create a financial bubble and a surge in price inflation, which might destabilize the economy. ...read more.

Conclusion

With the U.S. trade deficit with China hitting a new record of $202 billion in 2005, Senators Schumer and Graham once more crafted a Senate bill that would place a 27.5% tariff in Chinese imports unless the Chinese allowed the Yuan to depreciate further against the dollar. The Chinese responded by inviting the senators to China and convincing them that the country would move progressively towards a more flexible exchange rate policy. Over the next year the Chinese appeared to let the Yuan continue to appreciate against the dollar. In the last quarter of 2007, for example, the Yuan appreciated at annual rate of 13% against the dollar, the fastest pace since the peg to the dollar was abandoned. There seemed to be two reasons for this; first, arising Yuan helps the Chinese to keep inflation in check, and second, the cost of holding down the Yuan were becoming excessively high. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Management Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Management Studies essays

  1. Marks & Spencer China

    Marks & Spencer in China ? Finally, in order to understand the running of M&S, it is necessary to use tools. Indeed, in relation with the explanations of the articles of the literature review, the tool Marketing Mix is going to allow understanding of the behaviour in the Chinese Market.

  2. McDonalds and KFC: Recipes for Success in China

    Chicken, potatoes, cabbage, and carrots were all purchased locally. McDonalds, in contrast, had a different approach; She had about 43 suppliers in China, 70% of which were global partners who supplied thousands of other outlets in several other countries. The company's chicken, fries and even vegetable partners set up businesses

  1. Influences of the Chinese macro environment on the past, present and future employment these ...

    Factors other than the above mentioned have been examined to include: technology transfer, immigrant effect, market size, firm size, CEO successor characteristics, cultural distance, industry barriers and firm advantages, international experience, country risk and environmental uncertainty, role of staffing; foreign exchange and host country currency25.

  2. Outsourcing to China

    The decision to outsource is not industry specific, rather company and / or function specific. One decision that faces an organization early on in developing an outsourcing plan is whether to complete by oneself or utilize a third-party vendor. Riordan Manufacturing, Inc.

  1. Environement in China

    This might suggest that important initiatives are under way. The traditional Chinese philosophy advocates a fundamental balance between Heaven and Earth through the mediation of human good, a wise old man, who would practice constantly, his sense of "balance". The purpose of this essay is to know if the traditional thinking will resist against the devastating pressure of globalisation?

  2. Carrefour in China

    However, as CEO Lars Olofsson rightly identified, Asia remains Carrefour's key growth market. Although margins fell due to need to stay price competitive and contribution from Asia represents only 7% of the group's results, contribution rose by 10.9% to �242m result topped only by Latin America (Figure 3), (Carrefour, 2009).

  1. Salary Caps in US Sport

    So, where does the parity come into play? Parity means the state or condition of being equal, regarding status and pay (?Parity?). The star player of the team would make less because he/she would be a rookie. Where?s the justice in that? Starting in 1960, the NFL (National Football League)

  2. Import/Export Economics of China

    In recent years, China has stepped up an ambitious plan to increase the circulation of yuan outside the mainland and persuade trading partners to use it to invoice or settle transactions. And it is aggressively building a market for yuan-denominated debt.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work