The Chinese yuan/RMB is not a widely used currency for trade or investment purposes. Why is this? What will the Chinese government need to do to make the RMB more widely used? Why does it not take...

1. The Chinese yuan/RMB is not a widely used currency for trade or investment purposes. Why is this? What will the Chinese government need to do to make the RMB more widely used? Why does it not take these actions?
Answer
Chinese Yuan/RMB is not widely used currency for trade or investment purpose. It is because of the following reasons –
· Yuan is partially convertible to the capital account as against the US dollar which is fully convertible. Hence, US dollar is widely desirable currency over others.
· There is a tight control over Yuan that leads to difficulty in converting other currency into Yuan outside the China. Therefore, it is impossible to build Yuan reserve for foreign country as it is possible for US dollar.
· Due to US being world’s largest consumer economy, one must have to accept US dollar on export that makes the UD dollar acceptable everywhere.
· Further, the US dollar has always been a reserve currency for decades and therefore, inertia has been created in using the US dollar. Therefore, It is difficult to replace US dollar as a worldwide currency.
2.
1. The strong USD in the past year has led to large translation losses for many U.S. firm. Explain what translation exposure is and why the strong dollar has caused these losses. Should firms be hedging their translation exposure to prevent such losses? Discuss the ways firms can hedge translation exposure and their pros and cons.
Answer
When assets or liabilities held...