...Financial Markets & Institutions Group Assignment Yuan Devaluation Group 2 Group Members Kouadio Dieudonne XPGDM-18 Rohit Khandelwal XPGDM-28 Shruti Tibrewal XPGDM-32 COUNTRY AT A GLANCE Population | 1.364 billion | 2014 | GDP | $10.35 trillion | 2014 | GDP growth | 7.3% | 2014 | Inflation | 2.0% | 2014 | CHINA Economic Overview The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion. Since the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernization propelled the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world. China weathered the global economic crisis better than most other countries. In November 2008, the State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an...
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...FIN501: FINANCIAL MANAGEMENT The Research Project CHINA’S DEVALUATION OF YUAN SLAMS U.S STOCKS 201505021 TRAN THI THANH BINH (SARA) SolBridge International School of Business Winter 2015 China's Devaluation of Yuan Slams U.S. Stocks (Aug 11 2015, 1:21 pm ET) NEW YORK -- China's 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth. U.S. stock indices dropped more than 1 percent and stocks also fell in Asia and Europe as investors contemplated the implications of a move designed to support China's slowing economy and exports. The MSCI All World Index of global shares fell 1.16 percent. "What is good for growth in China is unfortunately bad for everybody else," said Bill McQuaker, co-head of multi-asset at Henderson Global Investors. The Dow Jones industrial average fell or 1.4 percent to 17,368.54. The S&P 500 lost 1.17 percent and, to 2,079.64 and the Nasdaq Composite dropped or 1.31 percent to 5,035.01. Companies that sell to China were hit hard, with heavy equipment maker Caterpillar losing 3.13 percent and Germany's Volkswagen dropping 4 percent. Energy and materials shares also tumbled on China demand concerns, with Exxon Mobil dropping 1.76 percent. The pan-European FTSEurofirst 300 index lost 1.68 percent, led lower...
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...1.0 Summary of the article It is not surprise to everyone that China has a major role in the global economy since its economic growth has moves the country into the ranks of middle income countries. Unfortunately, issues that China faced in most recently are whether it can contribute to the vigour of the worldwide economy and manage its internal stability. China's economy is now weakening and its GDP is perhaps below the government target of 7%. Investment sentiment is the weakest indicator, while the production level in China's industries has dropped which left surplus production capacity in the industries. Although China growth is slowing down, the probability that it will collapse suddenly is small. 2.0 Discussion The biggest problem in China is that the massive debt explosion is now threatening its entire economy, leading to a reduction in capital investment. There has been a boom in the Chinese stock market, yet buying share with borrowed money had magnified the fall when companies with huge debt begin to sell their investments to pay debts (Walker, 2015). Shanghai Composite Index decreased about 8.5% in August followed by China economy downturn which perhaps was the biggest decrease since 2007 (McHugh, 2015). Overreaction in Chinese market then affect the world such as Japan's Nikkei index had slipped by 4.6%, while the Eurofirst 300 index has had its worst day since 2009 (Matthews, 2015). However, falling of stock markets in itself will not cumber the global economy...
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...Chinese currency and its devaluation Chinese money is called Renminbi (RMB) means "The People's Currency". The popular unit of RMB is yuan. 1 yuan equals 10 jiao, 1 jiao equals 10 fen. There are parts of China where the yuan is also known as Kuai and Jiao is known as mao. Chinese currency is issued in the following denominations: one, two, five, ten, twenty, fifty and one hundred yuan; one, two and fivejiao; and one, two and five fen. The current official exchange rate between U.S. dollar and Renminbi yuan is about 1:6.8 (1 US dollar = 6.8 yuan RMB). Since the economic reform started in 1979, the Chinese currency (yuan) had been devalued several times until 1994 when the two-tier foreign exchange system was ended. While the official rate of yuan had been maintained constant over seven years since 1998, the pressure on the revaluation of yuan intensified. It has been perceived by some economists that the yuan is undervalued on an order of 37.5%. There are two implications for a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit. Thus, As China pursued its gradual transition from central planning to a free market economy, and increased its participation in foreign trade, the renminbi was devalued to increase the competitiveness of Chinese industry...
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...revaluation (usually devaluation) of a currency. E.g. Between 1994 and 2005, the Chinese Yuan renminbi (RMB) was pegged to the United States dollar at RMB 8.2768 to $1. 2. Free Floating System In this system the exchange rate is allowed to vary against that of other currencies. It is...
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...1. The impact of slowdown to Asia – economic variables, import and export of Asia The degree of impact of China’s slowdown on Malaysian companies vary depending on the price competitiveness, availability of substitution, type of business and the management’s ability to minimise the impact (Malaysia Chronicle, 2015). 1. Export The slowdown in China’s economy will ultimately impact Malaysia’s exports demand. China is Malaysia’s second largest export market, accounting for 15 percent of its export economy (Springfield, n.d.), Malaysia-China two-way trade topped $100 billion in 2014 (Kurlantzick, 2015). Both goods and services industries are affected in line with slowdown in China’s domestic demand, namely key export products such as electronic component, transport equipment and palm oil, manufacturing sector; and services industries including trading, shipping and tourism which are externally oriented (Singapore Business Review, 2013). Slowdown in China’s economic growth also weakened its currency, thus consumers will consumed more locally-produced goods as imported goods becomes more expensive (Kok, 2015). 2. Import 1% drop in China’s growth rate is due to 4% appreciation in RMB as an act of shifting demand from export to consumption and 1% increase in wage. As labour cost and RMB becomes more expensive, China exports price rises, thus Malaysia import price increases, contributing to capital outflow and increased CPI (Bokyeong, n.d.). 3. Growth The fall in exports...
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...Indonesia. Husky itself, is actually controlled by Hutchison Whampoa Lmt, a Chinese investment holding company. (Hoover’s Inc, 2015) While Husky is an international oil extraction company. As the majority of Husky’s operations are located in Canada, it is primarily a Canadian company. Its operations in both China and Indonesia though, it faces exchange rate exposure from both the Chinese Yuan and the Indonesian Rupiah. This is because it currently owns a 40% stake in the Chinese Wenchang oil field extraction operation, and has plans to develop oil fields in Indonesia. Assuming that local Chinese labour will be used for the construction and operation of these facilities, all labour cost will be incurred in local currencies. Also, it can be assumed that materials suppliers and contractors will be acquired from local suppliers in order to cut down on transportation costs. In all these scenarios, a devaluation of the Canadian dollar against the Yuan and Rupiah would lead to higher operating costs. Also, because Husky itself is owned by a Chinese firm, a devaluation of the Canadian dollar relative to the Yuan makes Husky less profitable to its owners, which could lead to decisions affecting it’s Canadian shareholders. For example, a Chinese recession...
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...On August 11, china’s central bank devalued the value of Yuan against the US dollar by 1136 pips or 1.9%, and made this devaluation the biggest one-day devaluation of USD/CNY in the history. If we look the year chart of USD/CNY, from 2008 to 2013, Yuan entered into an appreciation round (from roughly 6.85250 to roughly 6.04370). From 2014 to August 2015, Yuan entered into depreciation round (from roughly 6.04370 to roughly 6.39240). This cycle made Yuan completed a U turn that called by WSJ. Most people believe that the devaluation is because China wants to stimulate its exports. But, can china make it happen? From my perspective, china is not going to make it happen in the short run. First of all, if we simply let the china’s export revenues equal to quantity multiply by price. A decrease in export prices does not necessarily lead to an increase in exports. With high proportion of low value-added products in china’s exports and according to Qingyi Su (2013), “Income and Price Elasticities of China's Exports”, price elasticity of china’s exports is low, whose absolute value is less than one. Which means 1% decrease in price will increase the quantity by less than 1%, and leading to a decrease in export revenues. Secondly, According to the J-Curve Effect, the quantity of import and export are not change significantly at the beginning, However, due to changes in exchange rates, export revenues that settlement by US dollar will decrease, and import revenues that settlement...
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...could only maintain normal production for two or three days a week as a result of power interruptions. Throughout the country, lack of sufficient and reliable power supply seriously restrained economic and social progress. China’s slow and burdensome transition from a centrally planned economy to a more market-oriented economy was a major factor, despite the fact that government-planning authorities still rigidly controlled investment in generating capacity. The lack of an efficient power market and private investment were important reasons why generating capacity was unable to keep up with rapidly rising power demand. In response to the crisis, the Chinese government allowed local investors to invest in capacity generation. A tariff of 0.02 Yuan (0.32¢)/kWh was imposed on industrial end users to make up to the investors. In the effort of encouraging local investment in power generation resources, the tariff approach was a resounding success. This line of attack eased the strain on the government’s financial assets and also opened the door for further investment golden opportunities in the power industry, which constructed the basis for power market reforms that would arrive later. In 1995, China witnessed the installation of capacity generation that was 3.8 times and the generation of energy was 3.9 times that in 1978. Alas, the power shortage problem, something that lasted for almost two decades, was worked out. Growing Income Inequality The south and eastern regions have certainly...
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...right strategy could be employed. Recently, volatility in global financial market hiked to its highest level since 2011 mainly due to the rapid dramatic changes in the global equities market and its contagion effect on the global bond market. According to Irwin (2015), the root of cause of this global volatility outburst was mainly China. The main reason for a slide in Chinese stock market that impacted the global market would be the concern regarding the health of the nation’s economy due to the effort of transition from an investment and export led boom economy to something more sustainable in long term by the Chinese government. Besides, the surprise move by Chinese government to devalue its currency in part of an effort to align the Yuan with market forces also contributed greatly in the volatility (The Associated Press, 2015). Chu (2015) reported that as China is an emerging economy that contribute greatly to the global growth, there will undeniably an inevitably impact on the entire global economy. Anyone who is engage with China in international trading will take a direct hit on their own economy. Besides, the slowdown in China and other emerging market economy also result in a sharp fall in the commodity...
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...state control, local provinces were free to experiment ways to increase economic growth and they did through increasing production by building massive factories and taking loans from the central bank. This has led to overproduction and a supply demand mismatch which is evident from the Ghost cities (e.g. – Kangbashi district of Ordos in China) which include marvelous shopping malls, highways and stadiums but have one thing missing - people to live in. The government realizing this had tried to shift focus from a manufacturing to a service based industry that was more in tune with the free markets of the world from the existing highly controlled policies in China. This shift entailed reforms (like the devaluation of Yuan that happened after the crash and led to further loss of yuan from the global market) which have led to slowing GDP growth and increased realization among the investors about China’s actual state. Further, China had harbored a stock market bubble, despite slowing economic growth since 2010, where the investors continued to pour money into the Chinese stocks. By increasing incentives to take loans, lowering...
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...1. CHAPTER 1, question 1: The term globalization has become widely used in recent years. How would you define it? = “I define globalization as producing where it is most cost-effective, selling where it is most profitable, and sourcing capital where it is cheapest, without worrying about national boundaries.” 2. CHAPTER 1, question 10: Financial Globalization. How do the motivations of individuals, both inside and outside the organization or business, define the limits of financial globalization? = If influential insiders in corporations and sovereign states continue to pursue the increase in firm value, there will be a definite and continuing growth in financial globalization. But, if these same influential insiders pursue their own personal agendas, which may increase their personal power, influence, or wealth, then capital will not flow into these sovereign states and corporations. The result is the growth of financial inefficiency and the segmentation of globalization outcomes, creating winners and losers. The three fundamental elements—financial theory, global business, management beliefs and actions—combine to present either the problem or the solution to the growing debate over the benefits of globalization to countries and cultures worldwide. 3. Problem 9-1 Americo’s Earnings and the Fall of the Dollar. The dollar has experienced significant swings in value against most of the world’s currencies in recent years. a. What would be the impact on Americo’s consoli-dated...
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...www.nitie.ac.in Volume 7 Issue 1 StreetAtNITIE In-Fin-NITIE ALSO INCLUDES: Bank Loan for Startups MSME Sector Development Global Turmoil and Indian Capital Market IN-FIN-NITIE Vol 7 Issue 1 IN-FIN-NITIE Vol 7 Issue 1 MESSAGE FROM THE CONVENOR Want to become an Investment Banker or a Financial Research Analyst Stop dreaming…Add the skill sets required to become one… IIQF is the pioneer of high-end finance education in India. It is an education initiative of top industry practitioners who have pioneered the most sophisticated financial technologies in India like Portfolio Risk Management Models and Systems and Algorithmic Trading Systems using High Performance Parallel Computing. “A mere 25% of graduates that India produces every year is actually employable. Even though India is poised to become the third largest economy in the world by 2050, out of all the graduates that pass out in an academic year, only 25% are suitable for getting inducted into the industry.” Jeffrey Fuller, Principal Advisor of Human Capital. There exists a huge gap between the skills that are required by the industry and what the Indian academic system produces. The objective of IIQF is to impart training to students in those skill-sets that are in demand in the industry and make them industry ready, or as we call them “The Street-Ready”. Certificate Program in Advanced Financial Modelling in Excel and VBA Certificate Program in Financial Modelling in Excel ...
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...economists estimated that the Chinese currency (Yuan) was undervalued by 35%. So, for years, China kept a higher exchange rate. By doing so, China has some advantages but also some disadvantages. First, by undervaluing its currency, China keeps the Yuan as a weak currency, (because you need more Yuan to buy a US dollar). By doing that, China was able to keep a competitive advantage over other countries such as the US. Their products were sold for a cheaper price compared to the US products. But even if there are advantages, there are also disadvantages to have a high exchange rate. By having an undervalued currency, importations become really expensive. In fact, by having a high exchange rate, due to the price of importations, the deficit of China is also increasing. After several calls, the 21st of July 2005, China revalued its exchange rate from 8.28 Yuan per U.S dollar to 8.11 Yuan per U.S dollar. It implied other consequences on doing business with and “against” China. 2 - How is China’s exchange rate policy linked to its development strategy? How would changes in exchange rate policy impact growth in China as well as the rest of the world? Is the current exchange rate policy sustainable in the long run? China has known a relatively fast economic growth, becoming one of the leading exporting nations. Over the few last years, China has known a rapid growth in productivity relative to its competitors. Unlike the Euro, the Chinese Yuan is not on a floating exchange rate with...
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...(iv) Your country is in a recession. You feel that a policy of exchange rate depreciation will stimulate aggregate demand and bring the country out of the recession. This essay examines the effectiveness of using exchange rate depreciation to stimulate aggregate demand in order to bring a fictional country, Australand, out of recession. It will explain how a policy of exchange rate depreciation can increase aggregate demand and how this will stimulate economic activity and bring Australand out of recession. The process of depreciating the currency will be explained as well as possible ramifications of this policy. Alternative options to increase aggregate demand will also be explored. A recession is technically when an economy has experienced two successive quarters of negative gross domestic product (GDP) growth. For this to happen the total amount of goods and services produced by a country must contract on a quarter by quarter basis for six months or more. (http://news.bbc.co.uk/2/hi/business/7495340.stm) It therefore stands to reason that by increasing the total amount of goods and services Australand produces, known as aggregate output, will bring Australand out of recession. Blanchard and Sheen (2009 p39) state that in the short run the main determinent of aggregate output is demand and that changes in demand can lead to an increase in output. Aggregate demand is the total quantity demanded for output at a given price level and it is therefore necessary to...
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