If the Chinese Yuan Is Pegged Below the Equilibrium Exchange

question 23

Multiple Choice

If the Chinese yuan is pegged below the equilibrium exchange rate as expressed in US dollars per yuan,

• A) the currency is undervalued.
• B) the currency is overvalued.
• C) there will be a surplus of the yuan.
• D) the Chinese central bank must sell dollars to maintain the pegged rate.

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Definitions:

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments, represented in the cash flow statement, that are not related to the entity's primary business operations.

Cash Outflow

Money or cash disbursed by a business for various purposes like operating expenses, investment, and financing activities.

Inventory Purchase

The acquisition of goods and materials that a company intends to sell or use in production, recorded as an asset on the balance sheet until sold.

Financing Activity

Transactions and events where cash is obtained from or repaid to investors and creditors, excluding those relating to operating and investing activities.