China Fixes Its Exchange Rate (Yuan Per Units of Foreign

question 63

Multiple Choice

China fixes its exchange rate (yuan per units of foreign currency) at a rate well above its free- market equilibrium level, which means that China is keeping the external value of the yuan

• A)at its free- market price.
• B)artificially low.
• C)artificially high.
• D)at the rate established by its trading partners.
• E)in line with the world market for foreign currency.

---

Definitions:

Predatory Dumping

It involves temporarily reducing the price of goods in foreign markets to eliminate competition, with the intent to raise prices once competition has been reduced or eliminated.

Tariff

A tax imposed on imported goods and services, which can affect trade between countries by increasing the cost of imported goods.

Infant Industries

Newly established industries that are often protected by the government from international competition until they become competitive.

Absolute Advantage

The ability of an individual, company, or country to produce a good or service at a lower cost per unit than the cost at which any other entity can produce it.