The exchange rate Yuan/US$ has been decreasing in the last few months. As we can see in the chart below, last November we needed approximately 6.95 Yuans to exchange for 1 US$. Currently, we need only about 6.70 Yuans to buy 1 US$.
Following up on question 2, let's assume that the Chinese government decides today to eliminate the import tariff on soybeans. If the exchange rate Yuan/US$ now starts increasing during the next few months, would it enhance or reduce the impact of the elimination of the import tariff? Explain your answer.
It will reduce the impact of elimination of import tariff, because increasing exchange rate, will make import to be costlier and less import will take place.
When import tariff was eliminated, then imports increased, because importers had to pay only 6.7 Yuan for 1 USD. Now, with increase in exchange rate, they have to pay more number of Yuan for 1 USD for the same level of import. It will decrease the import of soybeans. So, the increasing exchange rate will have a reducing impact upon the import of soybeans.
The exchange rate Yuan/US$ has been decreasing in the last few months. As we can see in the chart...