The Value of Yuan Changed to U.S. Dollar 2015-2018

Problem Set for Group 7
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Problem Set for Group 7
Question 1
* The value of the yuan changed significantly in relation to the U.S. dollar between 2015 to 2018. The value of the yuan depreciated from 2015 to December 2016 by a 12 percent margin. This resulted in a growth of 6.2 yuan per U.S. dollar to 6.95 yuan per U.S. dollar. For this reason, the Chinese economy slowed, resulting in capital outflow. The depreciation increased the exports and the cost of production in various Chinese companies, which increased the price of key imports. The research indicates that around 980 listed Chinese companies reported a loss of 48.7 billion yuan during the year 2017, marking 13 times high compared to 2014. The condition was reversed from January 2017 to April 2018 since the yuan appreciated by 10 percent in value compared to the U.S. dollar (Farhi & Maggiori, 2018). This appreciation resulted in a decrease in costs by Chinese companies and increases in exports; thus, resulting in economic recovery from the depreciation experienced.
* The companies that were affected the most by the change in yuan were the Chinese airline companies. Since the fuel was paid in U.S. dollars, the fuel price in yuan increased, causing a descending slope in the company profits. For this reason, the Chinese airline companies were forced to sell their tickets at a higher price to overcome this problem. However, the increase in prices implies that the airlines will be less competitive and less appealing to their potential clients.
In the same way, the depreciation of the yuan to dollars results in foreign investors spending less USD for the same trip to China due to the drop in currency. Even when the ticket prices might have increased, the lowered currency gave visitors the advantage of having more visits to China. Therefore, it can be resolved that no changes in the potential foreign visitors will be there because of the same overall opportunity cost.
* The yuan experienced an increase in value by 10 percent against the U.S. dollar between January 2017 to April 2018. The cause of this depreciation was the election of Trump as the U.S. president and strong growth in China. It is believed that the election of Trump as the U.S. president lowered the confidence of foreign investors towards the U.S., which made the investors outflow their capital and diversify it into various foreign currencies and assets. While the Trump administration gave suggestions on an optimistic opinion on this phenomenon, it can also be presumed that an increase in U.S. exports will still be experienced.
After the beginning of the trade dispute in mid-2018, the yuan depreciated, and this depreciation lasted for a longer period compared to that of 2015 to 2016. Accordingly, it can be established that the changes in the yuan's value resulting from the increased tariffs and constant debate on trade issues. Importantly, as long as the U.S. remains more favorable in terms of trade, the Yuan/dollar relationship will be highly affected (Hargrave, 2019). Nevertheless, there is always an increased likelihood that the yuan will deflate against the U.S. dollar.
* The change in the price of the yuan significantly affe...