Fin501 International Finance
Module 1 Case Study 1
1) Some people are arguing that the Chinese Yuan Renminbi (CNY) could take over the US dollar. Based on your analysis and findings, will Renminbi replace the US Dollar as the world's most popular currencies to hold? Please explain your reasoning.
While China is a quickly growing country and becoming much more important in the global economic realm in my opinion I do not believe that their currency the Yuan Renminbi will take over the US dollar. While countries are taking note that China is growing they are now accepting and able to hold renbinbi since August 2010 (Frankel, J. (2011). Some of these countries are Mongolia, Pakistan, Thailand, and Vietnam. Some of the growth might not be the most reliable since the Chinese government is who controls the Yuans worth. The test that will be told over time depends on four components: scale, liquidity, stability, and security. China lacks in all four areas as well as one area that leaves the world holding their breath. China is being watched to see what type of financial controls they will have on nations that they have disagreements with. I do believe that China is gaining and the Yuan is a powerful currency in it’s own right but the bottom line is the American dollar has the stability and confidence that people in all nations can agree is there. 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. While looking into some literature about the Mexican Peso and it’s turbulent past a quote that struck me is such. “In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency does reflect its true value against its pegged currency, a "black market", which is more reflective of actual supply and demand, may develop. A...