Read the diagram below and the following two questions. (Attached below)

Red line: exchange rate_ CNY/USD Orange line: Shanghai Interbank Offered Rate - Federal Reserve shadow rate

1) try to explain the strong correlation between these two factors using what you have learnt from this chapter.

2) Do you think what you mentioned in part1) perfectly explain the CNY/USD trend? Are there any possible alternatives that can also provide some interpretations? Try to give one or two examples if possible.

7.2 Shibor-* (# #$ ( RNAZ) , %, Athief 0.0 1.0 7.0 2.0 3.0 6.8 4.0 6.6 5.0 6.0 6.4 7.0 8.0 6.2 9.0 6.0 10.0 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2020/3