Sample Question #136 (economics – international finance)
Imagine that China just announced it would let its currency, the renminbi (aka the yuan) float freely. What do you think happens to its exchange rate against the U.S. dollar, and what happens to the respective interest rates in the U.S. and in China?
Do you think this event will affect the exchange rate between the dollar and the yen?
(Comment: a nice case-type question that tests your economic reasoning skills)