Reread the Country Focus “China’s Exchange Rate Regime,” and then answer the following questions:

a. Why do you think that the Chinese historically pegged the value of the yuan to the U.S. dollar?

b. Why did the Chinese move to a managed-float system in 2005?

c. What are the benefits that China might gain by allowing the yuan to float freely against other major currencies such as the U.S. dollar and the euro? What are the risks? What do you think they should do?

d. Is there any evidence that the Chinese kept the level of their currency artificially low in the past to boost exports? Is China keeping it artificially low today?

e. What policy stance should the United States and the EU adopt toward China with regard to how it manages the value of its currency?