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6. Exchange Rate Market, and RMB Table1: CNY/USD Exchange Rate Date CNY/USD Parity rate 30 Mar 2020 7.0447 27 Mar 2020 7.0427 26 Mar 2020

6. Exchange Rate Market, and RMB

Table1: CNY/USD Exchange Rate

DateCNY/USD Parity rate
30 Mar 20207.0447
27 Mar 20207.0427
26 Mar 20207.0692
25 Mar 20207.0742
24 Mar 20207.0999
23 Mar 20207.0940

  1. On March 23, 2020. U.S. Fed announces the infinite quantitative easing policy, push the U.S. interest rate level to zero. Use the Foreign Exchange Rate Model to predict the short-run appreciation/depreciation of RMB.
  2. What would be the short run implication if market believes that U.S. quantitative easing is a long-run policy?
  3. In the second half year of 2020, the Chinese fully recovered from the Covid-19 crisis, and its reported that current account surpluses reach its highest level in the recent years. Together with this fact, use the long run exchange rate determinant theory to explain the following USD/CNY parity rate dynamics in Figure 1: (horizontal line is date and vertical line is the USD/CNY parity rate)

Figure 1: The dynamics of USD/CNY

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