Create a new account

It's simple, and free.

Exchange Rate Risk

Exchange Rate Risk: According to Nouriel Roubini in an essay published online by New York University's Stern School of Business, large trade surpluses, rapid export growth, large foreign direct investment inflows and large foreign currency reserve increases are not always signs of economic health for China. Trade surpluses, along with rising foreign exchange reserves, were once considered to be signs of China's economic dynamism and considered to have no negative implications. However, the scale of China's reserve accumulation and the difficulties managing those reserves are leading views to evolve. There is growing concern that rapid reserve growth is making it more difficult for Central Bank to conduct monetary policy. Looking ahead, China's central bank is considering how it will absorb another $250 billion or more in foreign currency reserves without putting the bank at risk in the event of the devaluation in value of one or more of the foreign currencies in which the central bank already holds large reserves (Roubini, 2005).

According to an essay published by the Office of the United States Trade Representative, the government of China has undertaken measures to facilitate their transition to a flexible, market-based exchange rate regime. At the same time, China is working to strengthen its banks and to prepare these banks for exchange rate flexibility. China has taken steps to develop financial products and markets to support foreign exchange trading, and hedging of foreign exchange rate risks (Department of Treasury Efforts Yielding Results on China Currency, 2004).

According to an article written by Zhang Dingmin and published online by the New China Daily (2006), on January 4, 2006 China announced an additional move to reform its exchange rate forming mechanism by introducing an internationally prevalent price-finding mechanism in the interbank foreign exchange market. One goal of this initiative is to improve the...

Page 1 of 3 Next >

More on Exchange Rate Risk...

Loading...
APA     MLA     Chicago
Exchange Rate Risk. (1969, December 31). In LotsofEssays.com. Retrieved 16:42, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1703404.html