Is the following correct?
Not being an expert in the subject of foreign exchange and doing it as an investment strategy, my colleague and I stuck up and discussion. He wants to buy Chinese RMB now and sell them at after China floats the currency. SO will he make money or lose money?
For ease of understanding I used simple numbers to determine what will happen.
Suppose US$1 buys RMB$10
Therefore for US$10 one can buy RMB$100
Now if the currency is devalued the exchange rate should change…
Now US$1 buys RMB$20
So if I sell my original RMB$100 / 20 then I have lost half my value in $US and now have US$5
On the other hand if the exchange rate goes the other way I make a profit.
US1$ buys RMB$5 then my original RMB$100 is now US$20
Voila a profit…
Now form my understanding it