implemented the reform ofRMB exchange mechanism, RMB is no longer pegged to theU.S.dollar. So, the managed floating exchange rate system wascarried out. The exchange rate reform may improve the tradeimbalance. The impact of RMB exchange rate fluctuations ontrade structure is a double-edged sword. The exchange rate hasbecome an important factor affecting China’s economicgrowth and foreign export .What impact would RMBexchange rate fluctuation have on Chinese trade export? Howshould the Chinese enterprises behave to effectivelycircumvent the exchange rate risk? How is the effect of currentforeign direct investment on China’s foreign trade ? Theseproblems are to be deserved the study and explore. This paperattempts to extend the existing literature by examining therelation between FDI and trade export and exchange ratevolatility in China. The restof this paper is organized asfollows. Section 1 contains the research background and therelated literature review. Section 2 deals with methodology andempirical results analysis. Section 3 contains conclusion andpolicy suggestions.Moreinfo
Under the financial crisis in recent years, China’s foreigntrade policy has undergone fundamental changes. Exchangerate impacts the costs and prices of goods and services of acountry. When a currency’s exchange rate rises, import willincrease and export may decrease. From the view of the theory,the impact of exchange rates on international trade is analyzedin respect to the two aspects. Firstly, the average level ofexchange rate change has impact on import and export trade.The J-curve effect and sticky effect of the consumption andproduction behaviors may be systematic explain.
Secondly,exchange rate fluctuations increases the risks related with theforeign trade, which may weaken the foreign trading volume.July 21,2005,Chinareform the RMB exchange rateformation mechanism. The newly RMB Exchange RateRegime refer to rather than peg to a basket of currencies,which is to control speculation and reduce the excessivevolatility of exchange rates. Owing to exchange rate risk,Chinese enterprises strengthened the awareness of operationalrisk. China is an export oriented country, which is rapideconomic growth accompaniedby rapid growth in exports.This leads to the upward trend of foreign investment.Moreover, the growth of China’s GDP is a favorable factor forRMB’s appreciation. One of the main factors for affectingChina’s export trade is the world market price of China’sexport commodities. The appreciation and depreciation ofRMB exchange rate affect the price of commodities for importand export. The differencebetween export price ofcommodities and market price of the commodity to someextent affect the demand in the world market, whichinfluenced China’s export volume and growth rate. Foreigndirect investment is increasing rapidly every year. clickhere
