Saturday, May 28, 2005

Currency_FOREX's strategy, buy more and sell less

Originally uploaded by bigkoala.
There is always a successful business tricky in the rice sale in the old China: Before the rice price is about to go up, the rice salesmen will sell less, or even none, to its customers. The shop will make money of course, and also avoid the certain tricky customers to make a quick money.

The same thing happens to China's currency at this time. Many customers has tried to buy more RMB, or yuan, assuming that the price, or the value of the "rice", will go up quickly. So the regulator, one who decides yuan's value, tries to limit the selling amount of the "rice".

The State Administration for Foreign Exchange (SAFE) has tighted rules governing certain types of trade-related foreign currencies inflows to the nation yesterday(in Chinese). From June 1st, or next Wednesday, four categories of overseas remittances exceeding US$200,000 must present further proof that they are trade-related, before they are exchanged to yuan. The types include export advance payments, entrepot forex earnings, or other categories where the bank cannot verify the trade background.

The action is explained as a way for the government to balance the enlarged gap in the exchange of local currency and foreign ones, reported China Daily.

Five days before the annoucement of the regulation, the SAFE loosened the regulation on the amount of buying foreign currencies for Chinese companies. Individual provinces are allowed to invest overseas 5 billion US dollars from 3 billion, while the actual amount exceeded the 5 billion could be allowed through permission.

The report also said Chinese companies have already invested about 5.1 billion US dollars in more than 1000 overseas project till 2004.

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