The author would like to thank the research support from the National Nature Science Foundation of China (70673011, 71173042) and the National Social Science Fund Major Projects (11&ZD018), Later Grants from the Chinese Ministry of Education (12JHQ030) and Research and Innovation Projects of the Shanghai Municipal Committee of Education (13ZS010). The author is deeply indebted to Professor Thomas C. Chiang for his advice and useful help in the completion of this paper, and also acknowledges the comments and suggestions of two anonymous referees. Any remaining errors are my own responsibility.
This paper constructs an RMB/USD exchange rate index and a basket currency exchange rate index. The correlation maximization of the RMB/USD and the basket currency index may determine the weight and quantity of the ba...