China's Interest Rates

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demands for local goods; no demand local goods refer to the demands for China Renminbi.

b. It may be argued that the high China interest rates should entice U.S investors to invest in China money market securities, which could cause the China Renminbi to appreciate. Reconcile this theory with your answer in part (a). If you believe that the high China interest rates will not entice U.S investors, explain your reasoning.

First of all, the high China interest rate would not entice the U.S investors due to the inflation is relatively higher in China compared to U.S. Even, if the U.S investors still decide to invest in China by expecting to get a high return from the investment due to the high interest rate, they are still going to get a low return when they convert the investment return to U.S Dollar. This situation is happen caused by the higher inflation rate between China and U.S. The high inflation rate in certain country can caused the value of that currency to depreciate ...

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