Please explain five different scenarios demonstrating how the U.S. dollar could depreciate relative to the Chinese...
Please explain five different scenarios demonstrating how the U.S. dollar could depreciate relative to the Chinese yuan. Please consider the exchange rate between China and the United States.
Homework Answers
U.S. could depreciate relative to the Chinese yuan, if China stops managing the currency and regulates it like the USD is.
It could depreciate when the demand for dollar slows down relative to the yuan, and people buy more yuan than USD. But this could hardly be the case as USD is used worldwide and its demand is much more than other currencies.
Also if China stops hoarding dollars in its reserves, there would be no upward pressure on the dollar, as the demand would reduce, which could depreciate the dollar with respect to the yuan.
Another scenario is if the PBOC does not use its dollar reserves to buy yuan, the dollar could depreciate, as there is more circulation of dollar in the market.
When China's economy grows, dollar weakers vs. when China's economy slowsdown, dollar strengthens with respect to the yuan.
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