Question

The U.S. has recently imposed trade restrictions on China; prohibiting the import of many Chinese goods. Assume China DID NOT retaliate (i.e. impose tariffs on imports of U.S. goods into China). If this is the only factor affecting the U.S. Dollar/Chinese Yuan Renminbi exchange rate, we should expect the Chinese Yuan Renminbi to depreciate relative to the U.S. Dollar. Indicate whether you believe the last statement is TRUE or FALSE, and then defend your answer.

Answer 1

Answer:

True.

Explanation:

Generally the theory states that, if a country does more exports as compared to imports, then the demand for it's good is high, and so is the demand for his currency. Now, in the earlier scenario, both China and US had hugh exports to each other's country. So the currency fluctuation got neglified. But if China is stopped from exporting things to USA but USA can continue exporting things to China, it will lead to appreciation of the US dollar against Chinese Yuan renminbi.