Module 2 discussion
Stocks and Bonds
Prior to the financial crisis in 2007/2008, the U.S.
Treasury Department as well as Congress had been asking China to revalue
upwards the value of their Renminbi or Yuan. China responded to these repeated
requests by allowing the Yuan to trade within a narrow band. The band itself
was then shifted upwards or downwards by small increments from time to time.
Still, the U.S. claimed that China had not done enough and should raise the
value of the Yuan by at least a further 20%. The reasons given to justify this
requested increase were as follows:
The artificially low value of the Yuan makes U.S.
manufactured exports unattractively priced in China.
The undervalued Yuan leads to excessive U.S. imports of
Chinese-made goods, which in turn, leads to an unwelcome trade balance in
China’s favor. For example, the trade deficit with China was roughly
-$258,506.0 million in year 2007. These numbers shrunk further during 2009 as
recession hit the global economy. In year 2011, the trade deficit with China
was roughly -295,456.5 million
(http://www.census.gov/foreign-trade/balance/c5700.html).
China chose to change their ‘floating’ arrangement and
pegged the Yuan to the USD at a rate they selected. China holds such a large
investment in U.S. Treasuries as a result of the continuing U.S. trade
surpluses that the U.S. does not have a great deal of leverage. If China sold
those Treasuries the U.S. dollar would fall significantly in value.
Discuss the issues involved with pegging or floating the
Yuan to the US dollar.
Important Notes:
Please note that this is an MBA course so you must show and
demonstrate your ability to provide reasoning for your response to discussion
questions.
?It is also required that all the students participate on a
regular basis and with some serious thoughts; that is, all the students are
required to respond to minimum of two other students’ postings with some
serious thoughts. In addition, all the students must provide their own answers
to Discussion questions.
?Also please note that “A” is NOT the
“default” grade. In order to receive “A” grades, students must show
and demonstrate their ability to provide reasoning for their responses to Case
Assignment, SLP, and Discussion questions. All the questions must be answered
carefully by providing quality argument (please read all the requirements and
instructions); that is, all the requirements for a certain assignment must be
met. In addition, all the calculations (if calculation questions were asked)
must be correct.
ScholarMatic: Explanation & Answer
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