Question

yuan At various times over the past ten years, economists in Western countries have felt that China was manipulating the value of its currency, keeping it artificially low in order to give the country an export advantage. The point is that if the yuan is valued at less than it's actually worth, imported goods will cost more in yuan than they should, and that will make imports less attractive to Chinese buyers, leading to an export advantage. Some economi sts feel that the yuan is valued at 20% less than it should be compared to the U.S. dollar. 6. If that's accurate, one dollar should be worth less yuan than the actual exchange rate. If the yuan is undervalued by 20%, then one dollar should be worth 20 % less yuan. Find what the exchange rate should be

Answer 1

1) International trade has taken a new turn because of currency which is now a potential weapon. China has started this with artificially keeping its currency undervalued against the UD dollar. As the Chinese Yuan is undervalued, Chinese export is cheaper than actual and it has the advantage. On the other hand, import in China is costly and that discourages import.
As a result, China has a huge surplus in trade with the US and almost every big economy in the world.

If we look at the current exchange rate then
1 USD = 6.99072 CNY

It is 20% undervalued artificially then the actual rate should be
6.99072 / 1.20 = 5.8256

Another way
1 CNY = 0.143047 USD
0.143047 * 1.20 = 0.171656

b) The Chinese Yuan is artificially undervalued and it should appreciate then the import will costlier.
As stated above, if the Chinese Yuan appreciates by 20% then the price of import of a Volkswagen will also rise by 20%.