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Renminbi Revaluation. Many experts believe that the Chinese currency should not only be revalued against the U.S. dollar as it was in July 2005, but also be revalued by 20% or 30%. What would be the new exchange rate value if the yuan was revalued an additional 20% or 30% from its initial post-revaluation rate of Yuan8.11/$?

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Answer:

By 20% : Yuan 6.7583\$

By 30% : Yuan 6.2385\$

Explanation:

Original exchange rate = Yuan 8.11/$

If the Yuan is revalued against the US dollar, it means it would take less Yuan to trade for a dollar, which would represent a decrease in the exchange rate.

1.) If the Yuan is revalued by 20%

[tex]r_{20} = \frac{Yuan\ 8.11/\$}{1+0.20}=Yuan\ 6.7583/\$[/tex]

2.) If the Yuan is revalued by 30%

[tex]r_{30} = \frac{Yuan\ 8.11/\$}{1+0.30}=Yuan\ 6.2385/\$[/tex]

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