Running Head: Financial Markets (APC 313) Running Head: Financial Markets (APC 313) Running Head: Financial Markets (APC 313) Running Head: Financial Markets

Running Head: Financial Markets (APC 313)
FINANCIAL MARKETS
Contents
STUDENT NAME:
PROFESSOR NAME:
Date:

Financial Markets (APC 313)
Question 1................................................................................................................ 2
Answer 1............................................................................................................... 2
Question 2................................................................................................................ 4
Answer 2............................................................................................................... 4
Question 3................................................................................................................ 8
Answer 3............................................................................................................... 8
Question 4................................................................................................................ 9
Answer 4............................................................................................................... 9
Referencing............................................................................................................ 12
Appendix............................................................................................................... 15
Question 1
Answer 1.
(a) As per Economists’ prediction US dollar may lose its status of being the Global
Reserve Currency. This may take place because of the following reasons:
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Financial Markets (APC 313)
i. The first two leading causes may be protectionist trade initiatives and
economic sanctions
ii. The currencies like Yuan and Euro have been actively looking for gaining the
position of Global Reserve currency and therefore China and Europe try to
make most of the trade in their own domestic currencies
iii. The factors like aggressive economic policy and huge amount of debt taken by
US is leading to de-dollarization in the entire world
iv. 70% of the trade in world takes place in US Dollars, 20% world trade in Euros
and rest 10% takes place is Asian currencies especially Yuan that is currency
of China
v. A trade in oil futures has been opened by China in their currency Yuan which
has strongly affected US dollars. Yuan the currency of China is ranked as third
important currency in the IMF (International Monetary Fund) basket.
vi. Iran is also not using US Dollar for its International settlement and has started
using Yuan in its place.
vii. Turkey is also in the plan to stop using US Dollar for International Settlement
and has already decided to settle in national currencies by entering into mutual
agreement with Iran
viii. Rise in the rates of Federal Reserve System, increasing pressure on most of the
currencies including Euro
ix. In December, 2014 the agreement for direct trading for Yuan and Rouble
between Russia and China came into force (McCormack, 2019).
Therefore, it seems Dollar may lose its status of being the world’s global currency by the
year 2030. Its position may be taken by Euro or Yuan. It can also be concluded that
American dollar may face a decline in its position in the near future.
(b) From the last many years China has been trying hard to replace US dollar from its
position of Global reserve currency. This was only possible after being successful as
reserve currency which would be beneficial for the economy of China in the
following ways:
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Financial Markets (APC 313)
i. Maximum of international transactions or cost would be in terms of Chian’s
currency Yuan. China is a country which is highly engaged in exporting the
products. These products are mostly priced in the US Dollars. In case, Yuan
become the global currency it would be really easy for China to export without
worrying about the value of US Dollar.
ii. If Yuan become the global currency it would become mandatory for the
Central banks to hold the China’s Yuan in the banks’ foreign exchange
reserves. This will raise the demand of Yuan and the bonds denominated in the
China’s Yuan would witness a fall in their interest rates.
iii. The borrowing cost of the China’s exporters would fall drastically if Yuan
become the global currency
iv. Economic influence of China would extensively rise as compared to United
States
There are many reasons listed below because of which IMF provided Yuan the status of
reserve currency:
i. People’s Bank of China had put a fixed rate of exchange of the currency Yuan
to US Dollar
ii. As a result, China witnessed a rise in economic growth as well as GDP
iii. With the growth in trade rose the popularity of China’s Yuan and in the month
of August year 2015 it was listed the fourth largest used currency in the whole
wide world (Amadeo, 2019).
However, still Yuan of China is not in a position to replace US Dollar and become the
Global reserve currency because of the following reasons:
i. Due to the attack of Corona Virus in China has deeply injured the economy of
China along with its reputation among the other existing countries (Times, 2020).
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