OFFSHORE MARKET OF ¥ UAN--------- ¥ UAN IS ON THE WAY TO INTERNATIONALIZATION

Presented By:

Qian Gao

Zahra Rezapour

Lulu Dong

AGENDA Offshore Yuan Market Definition Features Demand for Yuan ImportanceYuan bonds Good Investments’ Dim Sum BondsNew Yuan Products InfluencesSuggestions on Internationalization of

Yuan

OFFSHORE MARKET Definition: Activity which is specializing foreign currency loans and deposits is

called offshore finance, and the market is called offshore market. Features compared to onshore market: Market in a broad scope, strength of abundance in capital Loan relationship in market exists between borrowers and lenders

who are non-residents. Basically, offshore markets are not subject to the constraints of

financial laws and regulations governing foreign exchange in host government authorities.

There’s a relatively independent system of offshore market interest rates.

OFFSHORE YUAN MARKET GROWS UP QUICKLY

HEAVY DEMAND More banks are scrambling to relocate

foreign exchange traders to Hong Kong.

A growing number of Chinese importers and exporters settle cross-border trade in Yuan.

An increase of demand for Yuan among American businesses.

E.g. McDonald's Corp. and Caterpillar Inc. became the first U.S. non-financial corporations to sell debt priced in Yuan in Hong Kong.

IMPORTANT MEANING

Open up new channels of Yuan’s access to foreign investors.

Boost trade among China’s mainland, Hong Kong and other regional partners.

Further encourage the recognition and acceptance of Yuan by overseas market entities

Make the greatest step by China to make Yuan become world currency in the future.

¥UAN BONDS

GOOD INVESTMENTS’

Hong Kong signed an agreement with Beijing to allow companies trade freely in the Yuan

One-year non-deliverable forwards are at about 6.68 Yuan to a dollar, meaning the market expects the currency to appreciate over 1 percent in a year

DIM SUM BONDS Foreign investors face no obstacles when it

comes to dim sum bonds. Encourage the growth of a so-called offshore

Yuan market in Hong Kong, allowing bankers to create new products and services.

Interest has picked up in ways to play the currency's rise against the dollar.

Give access globally to investors who want exposure to the currency.

DRAWBACKS Yuan deposits make up less than 2 percent of

Hong Kong's total bank deposits.

The trend now is to hold Yuan assets, not issue Yuan debt.

Owing debt in Yuan means you will have to pay back even more when it is due, and that's not a good thing when you don't even know how much it's going to appreciate by.

DRAWBACKS Investors who want to speculate on the Yuan,

or companies that need to hedge against its fluctuations could only do so indirectly, through contracts that tracked the currency's moves.

Contracts become useless for businesses that need actual Yuan to buy or sell goods.

NEW YUAN PRODUCTS WILL BE LAUNCHING

INFLUENCE Banks such as Citigroup Inc. and HSBC are

offering investors Yuan-priced bonds and interest-rate derivatives.

Mutual funds dedicated to Yuan-priced investments were created.

Open the doors to wider issuance of Yuan-denominated bonds and other investments

Large trades can be executed relatively quickly in the NDF market.

Opportunities are beginning to emerge.

ACCELERATE INTERNATIONALIZING

YUAN Strengthen the cooperation with neighboring

countries and regions and build trust between investors and the currency Yuan.

Encourage the establishment of free trade and promote the trade settlement in Yuan.

Increase the use of the currency Yuan in foreign investment and financial aid.

Strengthen intergovernmental cooperation on monetary regulations, including the on-going implementation of the Yuan exchange agreement.

Further expand offshore markets of Yuan.

BIBLIOGRAPHY

http://www.foxbusiness.com/markets/2010/07/29/analysis-hong-kongs-yuan-bond-market-dreams-face-hurdles/

http://remington-work.blogspot.com/2010/11/dim-sum-bonds-on-menu-for-foreign.html

http://graphics.thomsonreuters.com/AS/pdf/CNYTOCNH.PDF

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aadaesJjOisY

http://cleaves.zapto.org/news/story-2275.html http://news.xinhuanet.com/english2010/

business/2011-01/05/c_13677915.htm