Final answer:
The exchange rate between the US dollar and the Chinese yuan fluctuates based on trade, economic policy, expectation of currency movements, and tourism. A stronger US dollar makes imports cheaper for Americans, while a weaker dollar boosts US exports. Expected appreciation of a country's currency can result in higher demand for that currency and lower yields on government bonds.
Step-by-step explanation:
Exchange rates between currencies, such as the US dollar and the Chinese yuan, are influenced by many factors including trade balances, economic policies, and market expectations. In the context of foreign exchange and trade, a stronger US dollar means American consumers can buy foreign goods more cheaply, benefiting US importers, while a weaker dollar makes US exports more competitive abroad.
When a nation's currency is expected to appreciate, there can be a significant impact on the yields of that country's government bonds. If investors expect the value of the currency to increase, demand for that currency - and assets denominated in that currency, like government bonds - may rise. This increased demand can lead to lower yields because investors are willing to accept a lower return for the potential currency appreciation gains.
Similarly, international tourists contribute to currency demand and supply dynamics. An American tourist visiting China, for instance, will supply US dollars to the exchange market in demand for Chinese yuan, affecting the exchange rate between the two currencies.