The Finance Manager And Global Considerations For All People
The Finance Manager And Global Considerationsmost All People Unwitting
The Finance Manager and Global Considerationsmost All People Unwitting
The Finance Manager and Global Considerations Most all people unwittingly purchase many imported goods. It might be an interesting exercise to check your recent purchases to see how many items include a “Made in China” tag. The U.S. has long criticized Beijing’s policymakers for keeping the Yuan (Chinese currency) artificially cheap to give Chinese exports an unfair advantage in global markets. Explain how China has been able to devalue their currency, the more specific the better. 200 words Discuss how the basic principles of finance apply to international financial transactions. 200 words
Paper For Above instruction
China has systematically devalued its currency, the Renminbi (RMB), primarily through direct intervention in the foreign exchange market and monetary policy tools. One of the main mechanisms involves the People's Bank of China (PBOC), China’s central bank, actively buying and selling foreign currencies to influence the RMB's value. By purchasing foreign currencies such as the U.S. dollar with yuan, the PBOC increases the supply of yuan in the market, leading to a depreciation of the currency. Moreover, China used to maintain a fixed or semi-fixed exchange rate regime, pegging the RMB to the dollar, which allowed it to control the currency's value tightly. Over time, China transitioned toward a managed float system, wherein the currency is permitted to fluctuate within a certain band, but the PBOC still intervenes to prevent excessive appreciation or depreciation. Additionally, China has engaged in capital controls, restricting the outflow of capital, which helps maintain a lower value of the yuan by limiting demand for foreign currency investments from abroad. These measures collectively maintain the RMB's undervaluation, boosting exports by making Chinese goods cheaper on global markets, thereby providing China with a competitive edge (Fischer, 2017; Cheung & Qian, 2009).
The basic principles of finance—such as the time value of money, risk and return, currency risk, and inflation—are crucial in understanding international financial transactions. The time value of money emphasizes that funds received today are worth more than the same amount received in the future due to potential earnings. In international transactions, this principle is vital for discounting future cash flows from foreign investments or trade agreements. Risk and return considerations are paramount since investors and firms are exposed to various risks, including currency fluctuations, political instability, and economic shifts, which can influence profitability and decision-making. Currency risk, or exchange rate risk, is especially significant given the volatility in foreign exchange markets; firms engaging in cross-border trade or investments must hedge against potential adverse currency movements. Inflation differentials between countries can also affect purchasing power and profit margins; thus, financial managers must employ strategies like currency hedging or diversification to mitigate these risks. Understanding these core principles allows firms to optimize international transactions, limit potential losses, and maximize returns, supporting sustainable growth and competitiveness in global markets (Shapiro, 2013; Eun & Resnick, 2014).
References
- Cheung, Y. W., & Qian, X. (2009). China's Exchange Rate Policies over the Past Two Decades. Pacific Economic Review, 14(3), 245-264.
- Eun, C. S., & Resnick, B. G. (2014). International Financial Management (7th ed.). McGraw-Hill Education.
- Fischer, S. (2017). China's Currency Policy and Economic Impact. Journal of International Economics, 102, 1-12.
- Shapiro, A. C. (2013). Multinational Financial Management (10th ed.). Wiley.