Part 1: The Arguments of the Different Parties

1. Recap the different arguments used by the US and Chinese governments about RMB
2. Why are Japan, NIEs, & developing Asian countries less vocal than the US on the valuation of the renminbi?

Part 2: Impact and Determinants of an Exchange Rate

1. How do the exchange rate of a currency and its volatility have a direct impact on the economy?
2. How is the exchange rate of a currency determined?

Part 3: The Valuation of the Renminbi

1. Analyze the different components of the Chinese balance of payment. Based on the previous analysis, do you think the renminbi is overvalued against the US dollar? How can China maintain the exchange rate of the renminbi?
2. Why does the Chinese government want to keep its currency at an artificially low level against the US dollar?
3. Exchanging all of China's US dollars for RMB can lead to inflationary pressure. How does China avoid this risk?
4. Does maintaining a quasi-peg to the US dollar have a cost for China? Does the policy of buying US Treasury bonds have any negative impact on China.s or the world.s economy?
5. Why, despite the huge US trade deficit, has the US dollar not fallen? Do you think there is a risk of this happening?