2. Consider an online game that is popular in China. Besides having good skills,
ID: 1103565 • Letter: 2
Question
2. Consider an online game that is popular in China. Besides having good skills, players' performance also depends on the value of the virtual weapons they have in the game. There are two ways to obtain the virtual weapons: (1) By killing a monster in the game, there is a tiny probability that a virtual weapon will be obtained. (2) The players can buy the virtual weapons from other players using the virtual currency, which requires RMB to exchange for. Assume that the game provider does not supply virtual weapons, players can only buy the weapons from the existing players. RMB and the virtual currency is freely traded, so the exchange rate is changing every day. Keeping other things constant, consider the following 3 scenarios and analyze what are their impacts on the real exchange rate and the nominal exchange rate of the virtual currency per unit of RMB After an advertisement, the online game becomes even more popular and many new players join the game. a) b) A player wrote a cheating program that could create many virtual weapons c) There is a new online game announced. Many players switched to the new game. automaticallyExplanation / Answer
a) Given that new players have to buy weapons from existing players, when there are many new joiners, they need more weapons so the demand for virtual currency is increased. Hence virtual currency is appreciated and RMB is depreciated.
b) This would imply that virtual currency is no longer needed and so the demand for virtual currency is decreased. Hence virtual currency is depreciated and RMB is appreciated.
c) Here again, players leaving the game may include both new and old. If the number of players leaving the game is more, then the demand for virtual weapons will be higher and more virtual currency needed. Then the demand for virtual currency is increased. Hence virtual currency is appreciated and RMB is depreciated. If new joiners switched more than the proprtion of old members, the demand for virtual currency is decreased. Hence virtual currency is depreciated and RMB is appreciated.
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