China: A Nation Depreciating Its Currency to Economic Prosperity?

QUESTIONS FOR DISCUSSION: 1. What is exchange rate and why is it critical for a country's economic system? What are the implications of China's exchange rate system for its economy? 2. What is a currency peg? How is the currency peg maintained? How does a currency peg help a country? 3. Why do you think China opted for a currency peg, instead of any other method of exchange rate determination? Why was the US concerned over the currency peg? 4. What are the factors that determine the equilibrium exchange rate? Going by those factors, do you agree that the Chinese yuan was undervalued? How do you think revaluation of the yuan should be undertaken to reflect its real value? How will revaluation of the yuan affect the Chinese economy