Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade - II - Question Paper

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) given the rules for much of world trade and presided over periods that saw a few of the highest growth rates in international commerce. For almost half a century, the GATT’s basic legal principles remained more or lees identical. In the early years, the GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a part on development. GATT’s institutional structure and its dispute settlement system were causing concern. These are the factors convinced GATT members to produce new effort to reinforce and extend the multilateral system.



Caselet 3

learn the caselet carefully and ans the subsequent questions:

10. The think tank, Resource and info Service (RIS), remarks that the yuan is still far beneath its "natural exchange rate". In this regard briefly define how China affects the global economy?

(8 marks) < ans >

11. Yet a different ques. that merits attention here is the impact of yuan revaluation on the domestic Chinese economy. According to you what will be the impact of China’s move in the world trading market at near future? Also explain the impact if it resets its peg against the basket of currencies.

(7 marks) < ans >

It would not be wrong to say that the advent of financial liberalization has effectively eroded the hold central bankers hitherto enjoyed over monetary policy. The market mechanism and its 'invisible hand' have in quite unmistaken terms signalled that it would have a decisive impact over monetary policy problems hereafter. This is the hallmark of the 'new global financial order' that has completely altered the economic and financial landscape throughout the world. provided that exchange rate determination is 1 of the most vital policy instruments at the disposal of the governments and the central banks to alter the competitive profile of their respective economies, the impact of financial liberalization assumes added importance. The implication here is that the era of ‘fixed peg' is over and the authorities now resort to 'managed floating' of their currencies so that a few leeway is provided to the concerned authorities to fix their currencies. For instance, the Chinese allowed the yuan to float within a fixed band. They now peg the yuan to a basket of currencies and not to the Dollar alone, as had been the practice hitherto. The revaluation of the Renminbi-as the yuan is called has become a hotly contested debate in the financial and economic circles. The think tank, Resource and info Service (RIS), remarks that the yuan is still far beneath its "natural exchange rate".

Earning:   Approval pending.