The Value of Yuan Changed to U.S. Dollar 2015-2018

Problem Set for Group 7
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Problem Set for Group 7
Question 1
* The value of the yuan changed significantly in relation to the U.S. dollar between 2015 to 2018. The value of the yuan depreciated from 2015 to December 2016 by a 12 percent margin. This resulted in a growth of 6.2 yuan per U.S. dollar to 6.95 yuan per U.S. dollar. For this reason, the Chinese economy slowed, resulting in capital outflow. The depreciation increased the exports and the cost of production in various Chinese companies, which increased the price of key imports. The research indicates that around 980 listed Chinese companies reported a loss of 48.7 billion yuan during the year 2017, marking 13 times high compared to 2014. The condition was reversed from January 2017 to April 2018 since the yuan appreciated by 10 percent in value compared to the U.S. dollar (Farhi & Maggiori, 2018). This appreciation resulted in a decrease in costs by Chinese companies and increases in exports; thus, resulting in economic recovery from the depreciation experienced.
* The companies that were affected the most by the change in yuan were the Chinese airline companies. Since the fuel was paid in U.S. dollars, the fuel price in yuan increased, causing a descending slope in the company profits. For this reason, the Chinese airline companies were forced to sell their tickets at a higher price to overcome this problem. However, the increase in prices implies that the airlines will be less competitive and less appealing to their potential clients.
In the same way, the depreciation of the yuan to dollars results in foreign investors spending less USD for the same trip to China due to the drop in currency. Even when the ticket prices might have increased, the lowered currency gave visitors the advantage of having more visits to China. Therefore, it can be resolved that no changes in the potential foreign visitors will be there because of the same overall opportunity cost.
* The yuan experienced an increase in value by 10 percent against the U.S. dollar between January 2017 to April 2018. The cause of this depreciation was the election of Trump as the U.S. president and strong growth in China. It is believed that the election of Trump as the U.S. president lowered the confidence of foreign investors towards the U.S., which made the investors outflow their capital and diversify it into various foreign currencies and assets. While the Trump administration gave suggestions on an optimistic opinion on this phenomenon, it can also be presumed that an increase in U.S. exports will still be experienced.
After the beginning of the trade dispute in mid-2018, the yuan depreciated, and this depreciation lasted for a longer period compared to that of 2015 to 2016. Accordingly, it can be established that the changes in the yuan's value resulting from the increased tariffs and constant debate on trade issues. Importantly, as long as the U.S. remains more favorable in terms of trade, the Yuan/dollar relationship will be highly affected (Hargrave, 2019). Nevertheless, there is always an increased likelihood that the yuan will deflate against the U.S. dollar.
* The change in the price of the yuan significantly affects the trade associations between U.S and China. It has a great impact on the exports and imports between U.S. and China. In this case, the yuan's appreciation implies that its value is higher than that of the U.S. dollar. For this reason, the yuan gets a higher price causing an increase in the importing ratio of goods valued in dollars and the dollar price of Chinese exports. This is because the Chinese are more favorable in trade compared to the U.S. For instance, with fuel prices being priced in dollars, an appreciation of the yuan results in a decrease in fuel prices, allowing airline companies to import the increased amount of fuel. Further, changes in a country's currency in the foreign exchange market also affect the trade relationship between countries (Farhi & Maggiori, 2018). In this case, the change in the currency value does not bring a huge change in the exchange market since there is an established change in the price of yuan and that of dollars.
Question 2
* Most transactionsss between the Japanese yen and the Mexican Peso are completed through the U.S. dollar because the dollar is the most efficient and easier way to trade money. The dollar is deemed to be the most used and highly liquid currency in the global money markets (Ogawa & Muto, 2017). For this reason, the Peso and Yen are not widely used because of how the dollar dominates the market. When trading the Yen for Pesos, the most effective way is to change the Yen to the U.S. dollar and then trade them into Peso directly, other than trading Yen for Peso.
* In 2016, Peso fell in value alongside the Japanese yen because of the productive effect caused by the Japanese yen's increase in value and the Peso's fall against U.S. dollars. This was due to the U.S. presidential elections in 2016. The Japanese yen is recognized to be a safe and stable currency. It remained steady and held its worth against the U.S. dollars the even U.S. flustered in 2016. The election of a new president may cause the dollar to depreciate, resulting in the appreciation of the foreign currency against the dollar if the foreign currency does not change. When looking at the inflation rates of Japan, it is evident that its currency will remain profitable and safe even when there is no predictable economic growth. The economic situation in Japan is continuously healthy with insignificant growth, and its inflation rate remains low (Ogawa & Muto, 2017). For this reason, the currency shows growth compared to the dollar even during elections.
On the other hand, the Peso is considered as the most liquid denomination in the foreign money market. For this reason, stockholders will sell Peso when they are anxious about any future monetary upshot that may transpire. This is why the Peso fell compared to the U.S. dollar after the elections. President Donald Trump put forward pressure on appreciation of the Peso by pressuring the withdrawal of the U.S. from NAFTA that has been a key favor of Mexico as it causes growth in their economy. Therefore, the growth of the Peso is stricken by this move since many stockholders fear about the prospects (Hargrave, 2019). As a result, the Peso then begins to deflate against the U.S. dollar to a level of having a minimal record in years.
The Peso's depreciation against the Yen is highly foreseeable since the issues resulting from this are a norm and very common in the trading money market. In this manner, the Peso has always been versatile and liquid, while the Japanese yen has been very stable. When the expected hits the market, for instance, the U.S. elections, its effects in the money market are predictable.
* The fall in the Peso's value against the Yen has various benefits and costs to the Japanese and Mexican companies.
Benefits To Japanese Companies
* Cheap imports
* The increased purchasing power of the companies to Mexican goods
* Cheap an...