hi everyone
i am now doing a course about the trading activities among chinese economies
and there is a part about the foreign exchange control which is used as a non-trade barrier
but i am a bit confused about the mechanism behind it
and it states that such foreign exchange control is equvalent to an export tax or an import tariff
so again i dont know and cant understand how it works
is that because the over-valuation of the currency discourages the its exports? then how about the imports?
here is an example question:
Suppose the eqm exchange rate is four Yuan per USD under free trade. China imposes foreign exchange control and the official exchange rate is one Yuan per USD.
a) For exporters, the FEC is equivalent to an export tax of ____%
b) Suppose the govt acutions the right to buy forex at the official rate and the price of the right to buy one USD is 5 Yuan
Relative to free trade, the FEC is equivalent to tariff of _____%
c) Suppose the govt distributes the right to buy forex to chosen importers free of charge.
For importers who obtain the right, the FEC is equivalent to a subsidy of _______%
For importers who do not obtain the right, the FEC is equivalent to a tariff of ______%
hope anyone could help here
i am quite weak in the exchange rate stuff ( lol is very actually)
loads of thanks!