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More Banks to Trade Yuan Contract
2005-8-9 22:39:03      Bloomberg
The People's Bank of China said it will extend permission to more than 130 domestic and foreign banks to trade yuan-forward contracts, enabling them to hedge against swings in exchange rates.

Yuan Trading

The People's Bank of China, which sets a level for the currency each day, has allowed the yuan to gain from 8.11 on July 21 and begun managing it against an unspecified basket of currencies. The central bank allows it to fluctuate as much as 0.3 percent each day, increasing the risk exports face compared with the previous peg of about 8.3 per dollar.

The Chicago Mercantile Exchange said in June last year it would provide advice, counsel and expertise to China in the development of foreign-exchange derivatives.

China has been criticized by the U.S., Japan and some European officials, who say the government should let the yuan strengthen further after July's 2.1 percent appreciation.

Chinese officials including Central Bank Governor Zhou Xiaochuan and Yu Yongding, a member of the central bank's monetary policy committee, have said further changes in the yuan's value would be ``gradual.''

Derivatives are financial obligations whose value is derived from underlying assets such as debt or equity securities, commodities or currencies. Investors use them to bet on or guard against fluctuations in the price of the underlying assets. They can do this by purchasing contracts that give them the option to lock in an exchange rate. 

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