In 2022, the president of the People's Republic of China, Xi Jinping, said on a trip...

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In 2022, the president of the People's Republic of China, Xi Jinping, said on a trip to Saudi Arabia that China would start paying for oil with Chinese Yuan (CNY). The Saudi finance minister said his government is open to the idea of accepting CNY as payment, which would end oil being exclusively priced in U.S. Dollars (USD). 1. (7 Points) Use a diagram showing the exchange rate, expected currency returns, and money holdings to analyze the immediate effects of this announcement on China's" nominal interest rate and on the nominal spot exchange rate, assuming this announcement contains new information unknown to the financial markets. 2. (3 Points) What are the long-term effects? In 2022, the president of the People's Republic of China, Xi Jinping, said on a trip to Saudi Arabia that China would start paying for oil with Chinese Yuan (CNY). The Saudi finance minister said his government is open to the idea of accepting CNY as payment, which would end oil being exclusively priced in U.S. Dollars (USD). 1. (7 Points) Use a diagram showing the exchange rate, expected currency returns, and money holdings to analyze the immediate effects of this announcement on China's" nominal interest rate and on the nominal spot exchange rate, assuming this announcement contains new information unknown to the financial markets. 2. (3 Points) What are the long-term effects?

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