Question

Suppose that the following two events take place in the market for China’s currency, the yuan:...

Suppose that the following two events take place in the market for China’s currency, the yuan: U.S. parents are more willing than before to buy action figures and other Chinese toy exports, and China’s government tightens restrictions on the amount of U.S. dollar- denominated financial assets that Chinese residents may legally purchase. What happens to the dollar price of the yuan? Does the yuan appreciate or depreciate relative to the dollar?
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Answer #1

US parents buying more Chinese goods will increase the demand for the Yuan and at a higher demand the Yuan will appreciate. it will also increase the supply of the Dollar to the Chinese market and with abundant flow the Dollar will depreciate I.e. the Yuan appreciates.

Chinese government limiting the US securities that the Chinese citizens can buy will decrease the demand for the Dollar and stop the outflow of the Yuan, it will also lead to a depreciation of the Dollar and appreciation of the Yuan.

overall, the Dollar price of the Yuan will increase and the Yuan will appreciate.

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