Effect on chinese imports and exports

Reference no: EM1373896

China pegs the yuan to the United States dollar at 8.3 yuan each dollar. Assume that this is above the equilibrium level of dollar in foreign exchange market. What must the People's Bank of China do to maintain the peg? Next assume the Chinese government abandons the peg and allows the yuan to float. With the help of a graph of the foreign exchange market from the Chinese perspective-where China is the home country so e has the dimensions of yuan/$-explain what will happen. What would be the effect on Chinese imports and exports?

Reference no: EM1373896

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