Understanding Currency Exchange and Trade Imbalance

The video reviews the trade imbalance between China and the U.S., focusing on the exchange rate dynamics and the role of the Chinese Central Bank in maintaining a currency peg. It explains how the Chinese Central Bank intervenes by printing yuan and buying U.S. dollars to stabilize the exchange rate. The video also discusses the implications of these actions, including the accumulation of U.S. Treasuries by China and its impact on interest rates and the U.S. economy.

What is the primary goal of the Chinese government in maintaining a fixed exchange rate?

• To reduce exports to the U.S.

• To stabilize trade with the U.S.

• To encourage foreign investment in China

• To increase the value of the yuan

Why is there a higher demand for yuan compared to its supply?

• Because more goods are imported from the U.S.

• Because more goods are exported to the U.S.

• Because the yuan is undervalued

• Because the U.S. dollar is weak

How does the Chinese Central Bank maintain the fixed exchange rate?

• By increasing interest rates

• By printing yuan and buying dollars

• By selling U.S. Treasuries

• By reducing exports

What happens if the Chinese Central Bank stops accumulating dollars?

• The yuan will strengthen

• The PEG will break down

• The U.S. dollar will weaken

• The trade imbalance will increase

What is the impact of the Chinese Central Bank's dollar accumulation on the yuan?

• It strengthens the yuan

• It has no impact on the yuan

• It weakens the yuan

• It stabilizes the yuan

What is the main reason the Chinese Central Bank buys U.S. Treasuries?

• To earn high interest rates

• To support the U.S. economy

• To invest in a safe and liquid asset

• To diversify its foreign reserves

What is the effect of the Chinese Central Bank's actions on the U.S. economy?

• It increases U.S. interest rates

• It reduces U.S. exports

• It decreases U.S. interest rates

• It stabilizes the U.S. dollar

What is the relationship between U.S. Treasuries and the Chinese Central Bank's dollar reserves?

• U.S. Treasuries are a form of currency exchange

• U.S. Treasuries are a method to increase yuan supply

• U.S. Treasuries are a way to lend money to the U.S. government

• U.S. Treasuries are used to pay off Chinese debt

Why can't the Chinese Central Bank invest in random company stocks with its dollar reserves?

• Because it would decrease the yuan's value

• Because it is illegal

• Because it would drive stock prices too high

• Because it would be too risky

What is the primary function of U.S. Treasury bills and bonds?

• To increase the U.S. dollar supply

• To stabilize the U.S. economy

• To reduce U.S. debt

• To provide loans to the U.S. government