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China is a Communist country which has its own unique way of development and progress. Since the Economic Reform and Opening Up in 1978, China has built an effective socialist market economic system and became one of the world's most powerful nations. Furthermore, the research of RMB exchange rate has become a worldwide popular subject. The thesis is focused on how political and economic factors in domestic and foreign affairs affect the Chinese system of “managed exchange rate”. In addition, it discusses the findings of the influence from the government and market. Initially, the paper provides a brief overview of Chinese exchange rate progress. Afterwards, using correlation regression analysis, the paper found the following: when the RMB exchange rate goes up, the Chinese economy is tightened and vice versa; when RMB exchange rate fluctuates, commodity goods will not change in price; the RMB exchange rate does not have as big of an influence in the stock price as much as monetary and international factors; the RMB exchange rate price affects import/export and foreign exchange reserves. The overall finding was that although China has the managed exchange rate system, the government plays a bigger role. |