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2. (10 marks) RMB exchange rate In the lecture, we introduce an example to show how to determine the RMB central parity rate against USD,

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2. (10 marks) RMB exchange rate In the lecture, we introduce an example to show how to determine the RMB central parity rate against USD, after the reform on Aug 2015, The parity rate was based on the formula of 'the closing rate + the theoretical RMB exchange rate to keep the index of a currency basket unchanged over the previous 24 hours'. a) With the following information provided, Initially, we assume that 1 US dollar is 100 Japanese yen, 1 USD is equal to 1 Euro, and 1 US dollar is worthy of 6.2 Chinese Renminbi. Let it to be the base time. RMB6.2 = 0.4 x US$ + 0.3 x * 100 +0.3 x E. Renminbi is measured by a basket of three currencies. Figure out the theoretical RMB exchange rate when 1 US dollar is 120 Japanese yen, 1 USD is equal to 0.9 Euro. b) Assuming that the previous day's RMB central parity rate is 6.3, the closing rate is 6.35, together with your calculated theoretical RMB in part (a), figure out today's RMB central parity rate

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