Pegging rate of exchange of yuan in terms of the US dollar.
Assume that the Bank of China wishes to peg the rate of exchange of its currency, the yuan, in terms of the US dollar. In each of the following situations, should it add or subtract from its dollar foreign exchange reserves? Why?
a) US parents begin buying fewer Chinese made toys for their children.
b) US interest rates rise relative to interest rates in China, so Chinese residents seek to purchase additional US financial assets.
c) Chinese furniture manufacturers produce high quality early American furniture and successfully export large quantities