The Influence of the Exchange Rate of US Dollars on the Efficiency of Mutual Funds in China - Part 5



Based on the above, this section of the paper will present the results of the statistical calculations. The mean of the range of date presents is represented in Table 3. For the calculation of the mean, the researcher used the Average function from Microsoft Excel. Using the same software, the standard deviation is presented in Table 4.

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Table 3 – Mean

 No. Year Exchange rate Mutual Funds Value
 1 1997 8,32
 2 1998 8,3 10,80
 3 1999 8,28 57,40
 4 2000 8,28 84,60
 5 2001 8,28 82,10
 6 2002 8,28 120,50
 7 2003 8,28 256,10
 8 2004 8,28 324,60
 9 2005 8,19 469,10
 10 2006 7,97 856,50
 11 2007 7,61 3275,00
 12 2008 6,95 1940,00
 13 2009 6,83 2680,00
 14 2010 6,77 3684,00
Mean 7,901428571 1064,67

Table 4 – Standard deviation

 No. Year Exchange rate Mutual Funds Value
 1 1997 8,32
 2 1998 8,3 10,80
 3 1999 8,28 57,40
 4 2000 8,28 84,60
 5 2001 8,28 82,10
 6 2002 8,28 120,50
 7 2003 8,28 256,10
 8 2004 8,28 324,60
 9 2005 8,19 469,10
 10 2006 7,97 856,50
 11 2007 7,61 3275,00
 12 2008 6,95 1940,00
 13 2009 6,83 2680,00
 14 2010 6,77 3684,00
Mean 7,901428571 1064,67
Standard Deviation 0,579419132 1290,919238

As seen, the deviation of the exchange rate has a small value, meaning that the independent values are closer to the mean. However the deviation for the value of the mutual funds is very high. This translates into a very high spread of the independent values around the mean. Having two data values for the standard deviation, with such high differences may lead to the conclusion that the relation between the exchange rate and the value of the mutual funds is not a direct one. More conclusive proofs will be obtained from the Z score and the T test.

Z test

z-Test: Two Sample for Means
8,3 10,8
Mean 7,833333 1152,492
Known Variance 1 1
Observations 12 12
Hypothesized Mean Difference 0
z -2803,83
P(Z<=z) one-tail 0
z Critical one-tail 1,644854
P(Z<=z) two-tail 0
z Critical two-tail 1,959964

The 1.95 value obtained for the Z score confirm the hypothesis. That means that differences between the means cannot be just the result of randomization. In order to able o formulate a statically correct assumption we will perform also the T test.

The T test

To calculate the size of the effect for a two sample paired t test we need the following information: the average of the dependent variable for each of the groups; the standard deviation of the dependent variable for each of the groups; the number of pairs formed (number of subjects in both group) (Cragg, 1971); the indicators of the statistical test (t test value, the number of degrees of freedom, materiality).

t-Test: Paired Two Sample for Means
8,3 10,8
Mean 7,833333 1152,491667
Variance 0,391861 1860086,228
Observations 12 12
Pearson Correlation -0,88951
Hypothesized Mean Difference 0
df 11
t Stat -2,90618
P(T<=t) one-tail 0,007143
t Critical one-tail 1,795885
P(T<=t) two-tail 0,014286
t Critical two-tail 2,200985

The t value is also pointing to the idea that there is a direct correlation between the exchange rate and the value of the mutual funds. In this condition, the hypothesis tested is statistically valid. However, statistically valid, does not always mean scientifically true. The best example is related to the comparison between the years when the exchange rate was stable and the years when the exchange rate started to drop. The values and the performances of the Chinese mutual funds always kept rising. Of course, the influence of the economic crisis was felt also by the Chinese mutual funds, but the difference between the decrees of the exchange rate and the decrees of the performances of the mutual funds is not having a direct relations.

One of the main points that need to be made here is the fact that China’s economy is based on exports. Exports, that in a large percentage go to the US. On the other hand, China’s imports from the US are having a low value, so their economy is less influenced by the exchange rate of dollar – yuan. In addition, China’s opening towards the U.S. in term of financial investments has been realized just recently. This represents another factor that consists a barrier in the interdependencies of the two countries.


Considering the date obtained from both the standard deviation calculations and the Z and T test, but also the financial analysis, the present study can argue two distinct arguments. Statistically speaking, the relation between the exchange rate and the performances of the mutual funds measured in the value of the assets is a direct one. Almost all test performed point into this direction. However, the economic realities are different. For years, the exchange rate of the dollar versus the yuan was stable. Even more stable than the financial market specialists have wanted. Also in this period of time, the asset value of the mutual funds in China has grown constantly. In addition, it needs to be noted that China’s opening towards foreign investors has occurred just recently and China, for the last 10 years had no open-end mutual fund.

Although the financial analysis is nowadays based on statistical interpretations, to take the statistical data for grated is just a sign of a limited economical view. In addition, the implications and the correlations of today’s economic life are so great, that a simple statistical analysis is no longer sufficient.

Currently China is the world’s first emerging super power in both economic and political terms. Its success is related to both a protectionist internal policy and to its extra-large exports. China’s economy is not based on a high quality of goods, but has a huge cost related competitive advantage. An advantage that was also translated to its mutual funds. Considering small steps, and taking in consideration all the available risks, China has grown each year its mutual funds industry (although it represents just a tenth from the value of the U.S. industry), registering the highest growth in the world. The present study is another proof that China’s economy is independent, and that the relation with the U.S. dollar is not having a direct influence on its economy. Of course, decrees of the U.S. dollar will have repercussions on China, but these repercussions are smaller in absolute terms than the fall of the dollar.

5.1 Further Studies

Considering the basis established by the present study and the conclusions emitted, the proponent of this dissertation expects that the following studies will incorporate even more data, and that researchers will try to analyze this topic based on the future developments of the U.S. – China relations. The researcher of the current study considers that this is an ongoing work that needs to be updated, based on future developments. The interest of the U.S. investors in the China market will probably continue to rise, so the interdependences between the two states will become tighter.


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