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Foreign Exchange Risk Analysis

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The policies in china resulted in a successful market economy and indigenous private sector. This resulted increase of foreign trade and inward investments. The high growth recorded in China regarding economic activity and manufacturing, prompted many companies to export to establish manufacturing units in China.1
The exchange rate in the international market is dominated by US dollar. The imbalance in the system can be considered as a reason for instability. The foreign exchange policy by any state should have a long term agenda to appreciate it along with the increasing exports, which is a difficult thing. As per now the USD is international currency and Euro and Yen are trying to replace it. For this purpose the currency should fulfill the classical money functions. This makes the countries like china to have US currency up to some extent and this leads to appreciation of that currency resulting in increasing the import costs. If any country wants to appreciate its currency, it must be accepted by lot of people and countries in the world. This increases demand for that particular currency and can be appreciated. 2
The reason for the change in the foreign economic relations and exchange of Yuan with other currencies is due to opening of its economy to the outer world. The private foreign capital was used to increase the economic development. As China absorbed the new capitals, the currency was being appreciated. The increase of manufacturing sector simultaneously provided the foreign exchange to china to import the requirements. As it followed the self reliance the imports are kept at a limitation and this resulted in appreciation of its currency over the international currencies.
As a result 1USD can fetch only 7 Yuan and this is due to the acceptance of the Yuan by different countries like the members of ASEAN and other countries. The self reliance and control of imports also made Chinese currency appreciate gradually over USD in the course of time. As per Nike company is considered it can export its goods into china. One reason is that there are very less currencies like Yuan that are very close to the value of US. This makes the company to make more profit in China than the countries like India, which have 1USD = more than 40 Indian rupees. So, instead of exporting the products to the countries like in India, it is better to export to country like China for Nike. Though it results in decrease of foreign investment, this resulted in healthy competition and growth of economy. 3
From the hardened stand in 1949-50 the US policy has been liberalized from then on China. UK along with US favored China and both of them relied heavily on china. The policies of US and UK made china to implement the economic reforms. 4 After the end of China’s Civil war both other parts of the world and China recognized the importance of China and the openness of the economies. After Europe, Britain considered the China to be important according to American influence. Out of its large investments in the world, the British and Americans have substantial investments in China. China, which was ranked below Hong Kong and Malays by US in the preferential treatment emerged as the front runner in the economic refo