Therefore, China is pursuing a weak currency policy in order to boost demand for Chinese exports. The large current account surplus in China is the indication that China’s currency is undervalued (Pettinger, 2011, p.1). The reason behind holding the value of Yuan is to compensate for its economic weakness. Its weak currency policy makes Chinese goods cheap compared with those of global competitors in Europe and Japan for instance. Since 1996, China has maintained a same fixed exchange rate resulting in an enormous increase in foreign exchange reserves. This enormous increase will be fuelled by Yuan that is estimated to be undervalued against the dollar. The benefit which it is getting by holding the value of Yuan is that it is selling more goods in foreign countries i.e. trade surplus (Cohen, p.1). Another benefit is that its capital market is becoming attractive to investors. If the successful internationalization of the Yuan will be possible then it will also be the international currency (Cohen, 2011, p.1). Evidence Suggesting Weak Currency Policy of China It has undervalued the price of its currencies in order to keep its currency policy weak in order to boost export and enjoy trade surplus. Its weak currency policy in relation to US Dollar enables them to buy dollar from the open market in order to keep the demand for dollars high. It drives the dollar price upward in relation to Yuan. The large account surplus in China is the evidence for its weak currency policy (Cksd, 2012, p.77). There are some negative aspects towards the weak currency policy of China. By depending more on exports and foreign direct investment inflows made China particularly weak towards the effects of the global economic slowdown. A weak currency policy i.e. undervalued currency makes import more expensive, thereby throbbing Chinese firms that import raw materials and machinery (Morrison and Labonte, 2011, p.22). A huge rise in China’s foreign exchange reserves in recent years is also the evidence that the Chinese Government has been holding its currency down in order to make weak currency policy (Shapiro, 2009, p.85). Relationship between Yuan Appreciation and Dollar Depreciation Currently imports from China accounted for about 10% of total U.S. imports. In June 2010, the value of Yuan was 6.79 to the dollar. In 2012 China allow the Yuan to trade in a daily range against the U.S. dollar. Soon it was announced that Yuan’s new trading band against the dollar will allow the exchange rates to move 1% above or below a daily reference exchange rates (Fung and Hong, 2012). Therefore a 25% appreciation of Yuan would be equivalent to 20% dollar depreciation. Such depreciation will result in stemming America’s appetite for foreign goods. If Yuan value appreciates, it will cause deflation, cut off foreign direct investment and cut economic growth. If these things will happen, prices will skyrocket preventing the consumers to buy the stuff in China, and the Chinese economies would break up to a halt. On the other hand, it will lead to the more export of U.S goods. The other country will have money and reserves to buy America’
Treasury and Risk Management Table of Contents China Trying to Hold Down the Value of Yuan 3 Reason for Holding the Value of Yuan 3 Evidence Suggesting Weak Currency Policy of China 4 Relationship between Yuan Appreciation and Dollar Depreciation 4 Effect of Undervalued Yuan on China’s Economy 5 References 7 China Trying to Hold Down the Value of Yuan Reason for Holding the Value of Yuan China is pursuing a policy of holding the value of Yuan thereby not increasing the value of its currency in order to enhance growth, especially in its key exporting industries…
Section (a) The net gain or loss for the stock prices between $121 and $231 per share at option maturity is calculated as follows: Purchased Share Price ($) Current Stock Price ($) (i) Long Share Profit & Loss ($) Strike Price ($) Premium Paid ($) (ii) Long Put Profit & Loss [Max((Option Value - Premium Paid), Premium paid)] Strategy [(i)+(ii)] Protective Put (Net) 171 121 -50 165 28 $16.00 Exercise -$34.00 171 141 -30 165 28 -$4.00 Exercise -$34.00 171 165 -6 165 28 -$28.00 Exercise -$34.00 171 171 0 165 28 -$28.00 Do Not Exercise -$28.00 171 181 10 165 28 -$28.00 Do Not Exercise -$18.00 171 201 30 165 28 -$28.00 Do Not Exercise $2.00 171 221 50 165 28 -$28.00 Do Not Exercise $22.00 171 231
The yield curve of U.S. Treasury securities is regarded as a market benchmark because it is frequently used as a vital reference point by fixed income investors in order to evaluate the market conditions. The slope of yield curve predicts the future economic activity and that’s why it is used by the investor as a forecasting tool in order to understand the movement in future economic activities.
The introduction part defines captive insurance and stresses on its need to cover various business risks. Various types of captive insurance are described along with the kind of insurance business undertaken by them, with different captive roles. As the business group is Australian, the report discusses the impact of Australia’s DOFI legislation on the righteousness of the decision of the business to operate a captive unit for the insurance needs of the company in preferable locations, including Australia, Guernsey, Bermuda, and Singapore.
It is having about 2,000 suppliers and employs about 78,000 employees. M& S controls about 11.2 percent market share in retail clothing and about four percent of UK food market. The major financial risks encountered by the M&S group are funding, liquidity,
A very good example is of Honeywell Inc. Honeywell has used an overall annual aggregate retention to manage its risks rather than using separate retentions for each risk. This does not only reduce premiums paid to
Similarly, for different current stock prices, the protective put strategy can be computed.
Hence, the breakeven share price is $199. It implies that the hedger will start to make profit after crossing the
The procedures and practices of the risk management model adopted by the bank were inadequate in providing enough control over various price and market risk models it adopted, especially within the chief investment office;
The oversight and governance
The use of bit coin has made it easy for individuals to transact money across borders much faster. This essay aims at outlining the impact of bit coin the financial as well as in the current economy.
The online treasury and
Unlike other subsidiaries, Toyota Motor Europe Manufacturing had opted to manufacture only 24% of autos for European market in Europe, the rest was still being manufactured in Japan. The situation became more complicated when
15 pages (3750 words)Essay
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you another Essay on topic Treasury and risk management for FREE!