https://www.globalbankingandfinance.com/what-is-appreciation/Among the currencies which have a major impact on the forex trading and analysis is Yuan- the Chinese currency or CNY (referred to as Renminbi). Yuans are also known as Kwai, meaning piece. In simple terms, you can say you’ve 10 pounds sterling (sterling is equivalent to coins), or 10 yuan renminbi.
It is said that originally Yuan had the same specifications as a silver dollar and thus was on par with the US. But since the Yuan moved away from gold standards, its similarity with the US silver dollar has changed and it has in turn, impacted the entire global community.
Chinese Economy in recent years
The wave European crisis had created has touched almost every economy at a reverse rate, i.e. all the major economies have since experienced the credit crunch and trying to create policies to sustain this credit crunch and thus, bring about the economic growth for their nation. The same holds true for China, which faces the economic downfall engulfing all the major countries worldwide.
The news reports reveal that China is working on its policies and trying to implement the reversal of policy and operating as regulators and ordering banks to support their (China’s) reserves. The decision to ask banks to lend a helping hand in order to strengthen the Chinese economy is the ongoing credit crunch creeping into the Chinese financial community and they don’t want to fall into a crisis.
Looking at the financial performance of China, it is going through a phase of transition. The idea of lowering the value of Yuan has facilitated the purchase of materials at a cheaper rate (by Chinese industry), and thus the export market has earned scores for its high performance. Conversely, if the Yuan value had to receive an appreciation, the cost of purchase of industry goods would have been much higher and this would directly impact the export market.
Ways to trade in Yuan
There are different approaches applied to Yuan trading.
- There is an expensive approach followed by large institutions (incorporating millions of dollars) which is by trading in Non-Deliverable Forwards (NDFs). As trading in NDFs requires huge capital investment, this instrument cannot be employed by average traders.
- In fact, the average trader can trade in Chinese currency ETF (i.e. in Chinese Yuan Fund or CYB). Unfortunately, returns received from CYB are relatively small.
- Another relevant approach towards trading in Yuan is its appreciation through other currencies, esp. Mexican Peso. Mexico and China are strong competitors, hence strong Yuan would mean cheaper materials exported to Mexico. Growth of China on a global scale, would mean a corresponding rise in Mexican economy.