Question

Suppose that the government of China is currently fixing the exchange rate between the U.S. Dollar and the Chinese Yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars?a. Increaseb. Decreasec. Remains the same

Answer 1

Step-by-step explanation:

$10 billion is being converted to yuan

at a rate of $1 = 6 yuan, it would be converted to 60 billion yuan

$10 billion is transferred to China since they gain ownership of yuan

36 billion yuan is being converted to $6 billion

China’s official reserves of dollars will increase because $10 billion is coming and $6 billion going out.

Answer - A