mini case

Project Description:

summary for mini case and answer the three questions


mini-case
first steps in the globalization of the yuan1
the chinese renminbi (rmb) or yuan (cny) is evolving.2 trading in the rmb is closely controlled by the people’s republic of china (prc), the chinese government, with all trading inside china between the rmb and foreign cur- rencies, primarily the u.s. dollar, being conducted only according to chinese regulations. its value, as illustrated in exhibit 1, has been carefully controlled. although it has been allowed to revalue gradually against the dollar over time, most indicators and analysts believe it to be grossly undervalued.
the degree to which trading in the yuan has been stunted can be seen through trade transactions. of the $1.2 trillion in exports made by china in 2009, it is estimated that less than 1% were denominated in rmb. a chinese exporter is typically paid in u.s. dollars, and has historically
not been allowed to keep the dollar proceeds in any bank account. exporters are required to exchange all foreign cur- rencies for rmb at the official exchange rate set by the prc. all hard-currency earnings from massive chinese exports are therefore turned over to the chinese govern- ment. the result has been a gross accumulation of foreign currency ($2,500 billion at end-of-year 2010) not seen in global business history.3
inevitably, the currency of an economy of the size and scope of china’s will result in more and more of its cur- rency leaving china. although it has restricted the flow of yuan out of china for many years, ultimately more and more will find its way beyond the reach of the onshore authorities. once out of the reach of chinese authorities, the yuan will be traded freely without government inter- vention. china knows this all too well, and has therefore adopted a gradual policy of developing the trading in the yuan—but through its own onshore offshore market, hong kong.


case questions
1. how does the chinese government limit the use of the chinese currency, the rmb, on the global cur- rency markets?
2. what are the differences between the rmb, the cny, the cnh, and the cny-ndf?
3. why was the mcdonald’s bond issue so significant?
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Price Type: Negotiable

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