A question from Yahoo! Answers:
Why Cash that drives shares in Shanghai also keeps U.S. interest rates low?
can someone explain and what does the china crash of 9% has someting to do with the U.S.A
Why cash that drives shares in Shanghai also keeps U.S. interest rates low? Because that cash buys both Chinese stocks and U.S. government bonds, pushing prices of both higher than it would have been otherwise. With bonds, high prices automatically translate into lower interest rates.
What does the China crash of 9% have to do with the U.S.? Most likely, nothing. Many Chinese companies maintain dual listings. Chinese investors buy shares listed on the mainland exchanges, foreign investors buy shares listed in Hong Kong. In recent months, domestic prices have been consistently above Hong Kong prices, in some cases by 30-50%, in a couple of cases, by 150-200%. A 9% drop in domestic prices, when viewed against this background, appears insignificant…