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Essay / Research Paper Abstract
This 6 page paper answers a set of questions regarding international currency exchange rate issues. The first question looks at whether or not it is likely for the Chinese renminbi to become an important reserve currency in the international markets. The exchange-rate mechanism used for the Mexican peso and Indian rupee are identified and discussed. This is followed by discussion on the risk rate associated with emerging markets, and recommendation which may be given to international currency investors. The bibliography cites 6 sources.
Page Count:
6 pages (~225 words per page)
File: TS65_TEexchquest.doc
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Unformatted sample text from the term paper:
there is no doubt that the Chinese economy is growing, with a projection by Goldman Sachs is that the Chinese economy will be exceed the US economy by 2027 (US
Department of Treasury, 2012). A large economy, complete with imports and exports, will see an increased internationalisation of its currency as trading countries need to utilise that currency for trade.
It is notable that this was a pattern seen following the Second World War, when sterling was succeeded by US dollars as the main reserve currency. The internationalisation process
of the Chinese currency has already begun, with the Hong Kong bond market growing rapidly, and since August of 2010 there has been the ability for foreign central banks to
hold the renminbi, a move which was not previously possible (Frankel, 2011). It is also observed that increased uncertainty regarding the stability of the euro and concerns on the part
of the Chinese policymakers may also be pushing Chinese to encourage internationalisation of its currency (Oliver, 2012). A currency may make the transition to an international reserve currency where it
is attractive to hold as a tool for international financial management. Criteria for this include the presence of a liquid market for the currency, convertibility and stability of that currency
(US Department of Treasury, 2012). At the current time the currency does not meet this criteria, the market for the currency may be growing, but it is still relatively constrained.
Furthermore, the liquidity of the markets is highly constrained, due to the development stages of the Chinese financial markets, which also limits the current ability to use the renminbi as
a reserve currency with the need for further regulatory controls (US Department of Treasury, 2012). However, as the currency internationalises these requirements are likely to become satisfy. Other moves, including
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