Contents Chinese financial markets International Monetary System and the Part 4: the Foreign Exchange Markets and rmb internationalization Purchasing Power Parity and Interest Parity History of RMB Exchange Rate Reform Foreign Exchange Markets, RMB Offshore Sept. Dec 2016 Market and RMB Internationalization By Zhang Xiaorong Currency Terminology 4.1 International Monetary System Foreign Currency Exchange Rate the price of one country s currency in units of another nd the"Impossible Triangle Spot Exchange Rate to be delivered at nce, or in two business days for interbank transacti Exchange Rate Regime he rules and arrangements on how and how much the exchange rate can change Currency Terminology International Monetary System Devaluation of a Currency In simple words, the international monetary system efers to a drop in foreign exchange value of a currency is composed of the rules and procedures for The opposite is revaluation More academically, the international monetary Weakening, deterioration, or depreciation of a ystem is the structure within which foreign Currency exchange rates are determined, international trade refers to a drop in the foreign exchange value of a floating and capital flows are accommodated and the balance-of-payments adjustments made The opposite is strengthening or appreciation2016/11/2 1 Chinese Financial Markets Part 4: the Foreign Exchange Markets and RMB Internationalization Sept.-Dec.2016 By Zhang Xiaorong Fudan University, Shanghai, China 4-1 Contents • International Monetary System and the “Impossible Triangle” • Purchasing Power Parity and Interest Parity • History of RMB Exchange Rate Reform • Foreign Exchange Markets, RMB Offshore Market and RMB Internationalization 4-2 4.1 International Monetary System and the “Impossible Triangle” 4-3 Currency Terminology • Foreign Currency Exchange Rate – the price of one country’s currency in units of another currency. • Spot Exchange Rate – the quoted price for foreign exchange to be delivered at once, or in two business days for interbank transactions. • Exchange Rate Regime – the rules and arrangements on how and how much the exchange rate can change – Can be fixed (pegged) or floating (flexible) 4-4 Currency Terminology • Devaluation of a Currency – refers to a drop in foreign exchange value of a currency that is pegged to gold or another currency. – The opposite is revaluation • Weakening, deterioration, or depreciation of a Currency – refers to a drop in the foreign exchange value of a floating currency. – The opposite is strengthening or appreciation 4-5 International Monetary System • In simple words, the international monetary system is composed of the rules and procedures for exchanging national currencies. • More academically, the international monetary system is the structure within which foreign exchange rates are determined, international trade and capital flows are accommodated, and the balance-of-payments adjustments made. 4-6