Spot Exchange Rate Of Rmb, Offshore Ndf Exchange Rates And Forward Exchange Rate Within The Interrelated Relationship Test

Exchange rate, undoubtedly, is one of the most important factors under open macroeconomic condition. Having a stable and sound exchange rate and an efficient foreign exchange market, which facilitates economic growth, is vital for any country or region. It is also a matter concerning the stability of the whole financial system. July 21st 2005 witnessed China's most recent Reform of Exchange Rate Regime. On that day, China embarked on its new exchange rate regime, which is a controlled floating one, based on market supply and demand, while adjusted by a basket of currencies. It is imperative to have an investigation on the Chinese foreign exchange markets. This paper focuses on three most important RMB currency markets, namely RMB/USD spot market, offshore RMB/USD NDF forward market and onshore RMB/USD forward market, with the hope to have an in-depth look at the dynamic relationship between and among three markets. A DCC-MVGARCH model, which is proposed by Engle, is adopted here to conduct the test.