Foreign Trade And Foreign Investment

1163 Words Dec 13th, 2015 5 Pages
The economy in China has always been inspiring to me, how this country made all of this civilization and how this country used its economy to overcome the barriers which it faced by used lots of methods. One of these method is the ‘’Exchange Rate Issue’’ in general is the low value of your currency to increase the investments and therefore, will increase the rate of employment. So, an important determinant of foreign trade and foreign investment is the exchange rate. A low value of Chinese RMB makes Chinese exports cheaper and investment in China more attractive if the investment is to produce for export. Many countries in the world including those in the European Union, Japan and Taiwan, have adopted the flexible exchange rate system while China adopted a fixed exchange rate up to July 2005 but the government did change the fixed rate several times in the 1980s and early 1990s relative to the US dollar as its government deemed appropriate. Most recently the Chinese government has adopted a managed floating rate with the government deciding the rate around a small band daily relative to the value of a basket of foreign currencies but the basket is not explicitly specified. There are pros and cons of the fixed and the floating exchange rate systems. (See the Appendix for a more detailed discussion.) A fixed exchange provides an anchor for the government in the conduct of its monetary and fiscal policy. It limits the discretionary power of the government in the exercise of its…
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