The picture from the WSJ below looks dramatic. That's when people say lies, damn lies and statistics…

What looks like a massive appreciation is really only a 0.4% move against the dollar. 

From the WSJ Journal in Education:

SUMMARY: China's central bank allowed the yuan to appreciate to its highest level ever versus the dollar, possibly signaling a new era of exchange rate liberalization in global markets.

CLASSROOM APPLICATION: Student learn how central banks impact a country's currency in a fixed exchange rate regime. They also learn how market forces may affect the value of a country's currency. Finally, they discover how changes in a currency's value affects exports and economic growth.

QUESTIONS:

1. What are two factors that caused the value of the yuan to appreciate to 6.798 yuan per dollar on Monday? Check today's dollar/yuan exchange rate and comment on the size of the appreciation to date

2. What will the effect of the central bank letting the yuan appreciate versus the dollar be on China's exports? On American imports? Why? Use information in the article, and recall the Marshall Lerner condition and the J curve.

3. How does the People's Bank of China (China's central bank) intervene in foreign exchange markets to keep the yuan from fluctuating? 

4. Does the U.S. government want the yuan to appreciate versus the dollar? Why or why not? Do American consumers want the yuan to appreciate versus the dollar? 

Reviewed By: Marc Tomljanovich, Drew University