You've probably heard about the global controversy surrounding the Chinese currency: international leaders have criticized the Chinese government for keeping the value of the Yuan artificially low, because an artificially undervalued Yuan has serious implications for international trade. Although the Yuan rose to historic highs in 2011, the U.S. has fallen short of accusing China of currency manipulation. Using a hypothetical example, Salman Khan of the Khan Academy explains the situation surrounding an undervalued Yuan.
From this video, you'll understand:
- The effect of a floating currency on trade imbalances
- How trade affects the demand for currency