From the Wall Street Journal in Education (edited)
EU Voices Frustration With China's Currency Policy
by James Areddy, Wall Street Journal, Nov 28, 2009
SUMMARY: European finance officials relayed to China's premier and central-bank governor frustration over Chinese currency's rigid exchange rate.
CLASSROOM APPLICATION: This article can be used to discuss the advantages and disadvantages of fixed versus flexible exchange rates and the mechanics of exchange rate manipulation
QUESTIONS:
1. Why are countries pressuring China to "lift" its currency?
2. How would China "lift" its currency? What are the mechanics behind exchange rate manipulations?
Use the FX Market diagram for the Chinese Yuan that shows currency demand and supply, and indicate any changes in reserves.
3. Explain why the declining value of the dollar relative to the euro affects the exchange rate between the yuan and the euro.
4. How would a rise in the value of the yuan affect the economies of Europe, China and the United States?
Reviewed By: Edward Gamber, Lafayette College