National Evaluation Series (NES) Business Studies Practice Test

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Prepare for the NES Business Studies Test. Study with flashcards and multiple choice questions, each question has hints and explanations. Boost your exam readiness now!

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What is a primary advantage to the Chinese economy of fixing the value of the yuan to the US dollar?

Chinese exports could be sold more cheaply in the US markets
This increases foreign investments in China
It protects domestic industries from foreign competition
It limits inflation within the Chinese economy

The correct answer is: Chinese exports could be sold more cheaply in the US markets

Fixing the value of the yuan to the US dollar provides a significant advantage to the Chinese economy by making Chinese exports comparatively cheaper in US markets. When the value of a country's currency is pegged to a stable currency like the US dollar, it creates predictability in exchange rates, which can enhance international trade. This fixed exchange rate can lower the prices of Chinese goods for American consumers since businesses won't face fluctuations in the currency value that could increase costs. As a result, this pricing strategy can lead to greater demand for Chinese goods in the US, boosting export volumes and contributing positively to China's trade balance. The other options, while they may have relevance in broader contexts, do not directly highlight the immediate effect on export pricing that comes from fixing the currency's value. For instance, while foreign investment and protection of domestic industries are important to consider, they are not the primary advantage that comes from the specific mechanism of fixing the exchange rate with the US dollar.