The Current Exchange Rate System Applied in China (Research Proposal Sample)

A Research Proposal Studying Factors and Forces Behind The Current Exchange Rate System Applied in China.
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Abstract
An exchange rate system is integral in any country. The exchange system adopted by any country helps to dictate its position in the international forces of trade. For a country like China, the exchange rate is held important considering the magnitude of trade the country has with other countries. The exchange rates importance is justified by the magnitude of GDP that is lost in conduction of various activities.
To that effect, this study focuses on determining various forces that are behind the current exchange rate system developed in China, bearing in mind that the country is the second in terms of GDP. The study also analyzes how the current exchange rate developed by China affects its position in international trade. The competitiveness of the China industries products have also been analyzed in the study.
The study comprises of various parts. The first part comprises of introduction. Introduction part covers several areas such as background information, statement of the problem, objectives, justification of the study, limitation of the order and the scope of the study. The second part of the study shall entail the literature review. Theoretical framework of the exchange rate system shall be covered, current exchange rate system applied in China, factors that made the government to adopt the mechanism and the effect of various trade aspects emanating from the current exchange rate system as applied in China. Research methodology is also covered in the proposal which describes how the research will be conducted. The kind of statistics that will apply in this case will be discussed in general.

Introduction
China’s economy is one of the largest in the world. As ranked by Forbes 2014, the country boosts the second largest economy in the world. This position occupied by China has been earned through major international trade elements. China has major international trade involvement with other countries through production of major assets in major China industries which are then exported to other parts of the world. China companies has major offshore production in other countries and also the country has wide range of industries which are parts of the other major corporation in other countries (Héricourt et al., 2013).
To be in a strong position in international market, China need to have a strong currency that will compete favorably with other countries in the market. Companies in China will be affected when importing or exporting goods in the event of change in exchange rate of the country as compared with rates of other countries. The magnitude of the effect depends on the shift of the currency in relation to other countries. As stipulated by Lutz (2014), exchange rate denote cost to firms of a given country. The cost for companies arise when commission is paid in the process of exchange by other countries. Exchange rate create a chance of risk for companies with offshore operations. The value of the assets and the stock may vary according to the exchange rate. Lastly, the exchange rate affects the rate of aggregate demand of exports if favorable. On the other hand, the imports may also be affected by the exchange rate of the currency.
Exchange rate of a country is determined by some market forces. Those market forces are outlined by application of global exchange rate regimes. These are determined by the magnitude of demand and supply of the currency (Rose, 2011). The condition though appears conducive has been known to have caused major flaws. To that effect, government of any country regulates the currency and the exchange rate system that the country shall adopt.
China being a major stakeholder in international business is also on the forefront of regulation. The government is motivated to practice the best appropriate measures that will benefit the republic of China in terms of being competitive and attain a fair share in the international trade.
Objectives
The main objective of the study is gain the cognition about the current system of exchange rate applied by China and its impact to its economy.
Specific Objectives
To determine the current exchange rate system of China and its functionality.
To determine impact of the exchange rate system to the Capacity of International Trade of Chinese industries.
To determine the effects of the exchange rate system to the economy of China.
Literature review
Determination of the exchange rate system depends on various elemental factors. The importance accrued to any type of exchange system depends on the benefits that emanate from it. There exists three kind of exchange rate systems. First, the floating exchanging rate. A floating exchange rate system is the type of exchange rate system where the currency of a given country is allowed to change as per the market forces of the country. Secondly, the fixed exchange rate. This rate system, the currency of that country is determined by value which is attached to a certain element. Thirdly, the pegged currency exchange rate is another currency exchange rate. The value of the currency is fixed periodically or permanently fixed. The theoretical framework of the current exchange system developed by China have been studied past. From it we can determine, the position of China and the latest development of China in regards to the current system.
Asian countries faced major economic crisis in 1990s. The condition was worse since investors from these areas fled out leaving major gap. As a result of the crisis, the capital flowed out and Asian countries currencies collapsed. Every major country in Asia currency dropped with the example of Korean being a 100% inflation. The case for China was different. The modest relaxation of capital account over the period was also the same despite major changes in the market (Rose, 2011).
Methodology
The study shall deploy a research design whereby descriptive and descriptive research shall be obtained. The descriptive data obtained gets information from major industries and also other countries in relation to international trade with China. Analytical data is obtained for major institutions on the inflation rate of goods in China. The quantitative data provides us with regression approaches on how the Chinese RNB have fared with other countries in terms of trade.

Findings
Information obtained concerning the currency exchange rate system applied in China was vital in the research. The information obtained aided in contribution to major objectives of the study. We found that:
The current exchange rate system applied in China is the pegged exchange rate system. The rate exchange rate system is tied at pegged to a certain value of a gold or another country. China pegged the RMB to the dollar back in the 1994. At that time, the exchange rate of dollar to RMB was 8.28. During that time, the government of China imposed restrictions. The exchange rate remained constant throughout until 2005, when the rate was affected by market forces and had to change. Later, in the year 2008, the country imposed again the pegged system to the dollar (Rose, 2011).
The rationale for selection of using a pegging system is due to the crisis and uncertainty involved in rising and falling currency in major of Asian countries. The stability of United States Dollar was the reason behind pegging of RMB currency.
The effects of the China’s currency policy on the economy is huge. There are various benefits that China have enjoyed by pegging the currency to the dollar. However, the benefits of pegging do result at the expense of other countries. However, despite the benefits China have experienced problems in pegging the RMB to the dollar.
The aspect of pegging adopted in China has made people to assume that the value of RMB in comparison with US dollar was constant. The government of the Republic of China in its aim regulated it at that point irrespective of the market forces. However, the real value of the currency was not the way it was stipulated. From July 2005, to June 2013, the appreciation rate of RMB was 34% on a nominal basis and 42% on the actual and real basis (Jiang, 2014).
Major benefits of using this pegged exchanged rate system was that the value of RNB continued to be undervalued. The status of being undervalued has helped China in trade. First, the country currency was kept at constant and this made the country currency to have security and many foreign investors have the courage to invest in the country. The condition was well handled well and few investors withdrawn during the Asian crises. An undervalued RMB acted as a subsidy to the exports. The decision benefitted many firms in China since goods in their places were moving at a high rate.
The move by China also enable it to acquire various U.S treasury exchange reserves (Lutz, 2014). The reserves enables the country to have the reserve to be used in the event of a foreign debt. The ability to purchase these types of reserves have helped to cement the position of China in the international market.
The magnitude of internalization of RMB has continued to be limited due to controls imposed on capital accounts. As it is the case wit...