Using real options to evaluate the reasonable Renminbi exchange rate interval

Abstract

Under the circumstances whether the Renminbi (RMB) exchange rate should be appreciated or depreciated to reach the reasonable level, the current RMB exchange rate seems to be improperly valued. This paper uses the Pearson correlation analysis and regression analysis to select six macroeconomic indicators and then uses the positive and negative relative weight to do the empirical analysis to find out the reasonable RMB exchange rate ranges. Furthermore, this paper will introduce the real options approach to get the appropriate RMB exchange rate interval in consideration of the influences of the potential value of appreciation or depreciation and other unexpected events on the exchange rate. The results will provide another measure or thinking of evaluating the reasonable RMB exchange rate interval.