University of Economics and Business

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INTERNATIONAL ECONOMICS

FINAL ASSIGNMENT

Full name: Nguyễn Hà My

Student code: 19051160
Date of birth: 16/12/2001
Course name: 202_INE2020-E***

Hanoi, Jul 2021

PART 1
Question 1: Analyze one challenge that the world economy is facing with. Supporting
your answers with relevant arguments and data.
The world economy has always been built on the foundation that countries and
countries cooperate and develop comprehensively in all fields of the economy - culture -
social life. The goal of developing countries today is towards the trend of economic
regionalization (Due to the uneven development and competitive pressure in regions of
the world, the countries have similar characteristics in terms of economic growth and
development, cultural, social, geographical or common goals, interests ...) have linked
together, typical examples such as EU, APEC, ASEAN..., all aim to increase trade
internationalization and foreign investment, or the expansion of international financial
markets, etc. However, it is easy to see that moving towards such economic
regionalization also poses challenges. knowledge for countries because now for this very
purpose, the economies of countries often depend too much on each other in key areas
such as the money market, securities, or health sector. global economy...
Therefore, when a big factor appears and harms the global economy, it will affect
major economies and other developing countries mutual assistance and cooperation in
various fields. This can be called the "Domino effect chain" because the impact on one
country also affects other countries in any way. Especially, the world is witnessing a
trade war between the two most developed powers in the world, the US and China. This
further increases the level of adverse effects on other economies, especially developing or
slow-growing countries. So we will analyze how the severe impacts of the COVID-19
pandemic affect many aspects of the world economy, especially developed countries.
The Covid-19 crisis in 2020 is not only negative but also has spillover effects on
the world economy due to supply and demand shocks in all areas of large enterprises
(El-Erian, 2020). It can be said that in recent years (2019-2020), the global economy has
witnessed unprecedented changes from Covid, causing the whole world to face its
consequences such as a decline in economic growth, a deficit in the international trade
balance, or the economic crisis, the health system is overloaded, businesses and
multinational companies are in danger of bankruptcy, unemployment is at an alarming
rate, causing people's living standards to drop dramatically,…
The pandemic pushed most countries into recession in 2020, it can be said that the
economy "freezes" because the economy has been affected very badly, many countries
can hardly recover if the epidemic uncontrollable
First, we will analyze the impact on the world economic aspect
One of the reasons for the outbreak of the COVID-19 epidemic is that rapid
globalization, mass urbanization and climate change contribute to an increase in the rate
of outbreaks.
* Challenges for large, thriving economies in general
In May 2020, the Asian Development Bank announced that COVID-19 could cost
the global economy between $5.8 and $8.8 trillion.
In 2020, the Covid-19 pandemic has caused a sharp decline in the growth of many
economies around the globe that has not been seen in decades, even many countries are
standing on the brink of an abyss. Although economies had a strong recovery in the
third quarter of 2020, the road back to normal is still fragile when the Covid-19 vaccine
has been distributed in many countries, but many countries is still recording new cases,
especially when a new variant of Covid-19 appears. Most international organizations
share the view that the global economy is unlikely to recover in the short term, but it
will take many years.
The cause of the GDP fall is the decline in net export. One of the main reasons
behind the reduction in import and export is the extra cost related to the border crossing
of the products. Due to the spread of COVID-19, it is calculated that the transport and
transections costs of cross border trade have increased by 25%.
The year 2020 has recorded for the first time dozens of major economies in the
world simultaneously falling into recession such as Spain, USA, UK, France, Germany,
Italy, Australia, Brazil, Japan, Korea, Indonesia, Singapore, Philippines, Thailand,
Indonesia... Global GDP recorded a sharp decline in 2020 (-4.2%). In which, the US and
Europe are the main focus of epidemic developments and also the places where the
economic and trade growth rates are the worst in 2020.
In the US, which is one of the largest economies in the world, in the second
quarter of 2020 it shrank by 31.4%, mainly due to a sharp drop in consumer spending by
34%. According to the US Federal Reserve, it is clear that the global economy and the
US will be greatly affected due to the size of the Chinese economy. Before the outbreak
of the epidemic, China's total GDP was 13.6% - second only to the US economy - with
16.8% contributing to the economy. Previously, the country's economy shrank by 5% in
the first quarter of 2020 and officially fell into recession due to the Covid -19 epidemic,
ending the 11-year growth streak - the longest period of growth in history. U.S. Besides,
the number of people infected with COVID is constantly increasing, making the US
become the country with the highest number of people infected and died from the
disease in 2020. The policies that the US government issued at that time were effective.
However, due to the complicated epidemic, the US was forced to suspend many
activities such as immigration, import and export, various types of entertainment,..
In Europe, the situation is equally bleak when in the second quarter of 2020, the
Eurozone economy was strongly affected by the crisis with GDP shrinking by 12.1% - a
decrease of 12.1%. strongest since 1995, after falling 3.8% in the first quarter of 2020 as
business activity stalled as businesses had to close to prevent the spread of the disease.

According to the above GDP forecast table, GDP of the world economy decreased from
2.9 in 2019 to 2.5 in 2020. In which, world GDP decreased by negative 0.5. World
Monetary Fund estimates that the economy dandung previous three biggest challenges
as trade tensions, the risk of financial and fiscal, how to achieve growth covers.
 Some major eurozone economies such as Germany, France, Italy and Spain all
recorded a sharp decline in GDP in the second quarter of 2020. As for Germany, which
has always played a leading role in Europe's economy, the GDP decline in the second
quarter of 2020 was 10.1% - the sharpest decline since 1970. Or Spain also recorded a
GDP drop of 18.5%. In addition, the GDP of France and Italy decreased by 13.8% and
12.4% respectively.
In Asia, Japan's economy also fell into recession for the first time since 2015 as
the world's third-largest economy grew negative for two consecutive quarters due to the
impact of the Covid-19 pandemic. Compared to the same period in 2019, Japan's GDP
fell by 3.4% in the second quarter of 2020, when both private consumption, capital
expenditure and exports all declined. In the second quarter, the country's economy
shrank 28.8%. Previously, in the fourth quarter of 2019, Japan's economy shrank 7.3%.
To cope with the bad impact of Covid -19, countries have simultaneously launched
stimulus packages along with many monetary and emergency loan measures to rescue
the economy. For example, a series of central banks in the world such as Europe, China,
Japan, the United Kingdom, Australia... have lowered interest rates to record lows.
And also to boost the world economy, the US government spent an unprecedented
amount of bailout amounting to trillions of dollars to stimulate consumption and secure
jobs. Japan also announced three stimulus packages totaling $2,410 billion to ease the
impact of the pandemic; or the European Union also launched a Recovery Fund… 750
billion euro ($860 billion)
However, according to economic experts, there is also the fact that the launch of a
series of economic stimulus packages without taking into account the side effects, is
pushing many countries into a new difficult situation. This trend of monetary and fiscal
easing through financial support packages amounting to trillions of dollars along with
interest rate cuts has put the public debt and budget deficits of countries under serious
threat.
* The pandemic affects the world stock market
Stock markets are quite interlinked all over the world because even a small impact
or an outbreak of the disease can affect the world stock market. Crisis in one part of the
world influences the stock market of other parts (Morales, & Andreosso-O’Callaghan,
2012). Any shock to the Chinese economy has deep repercussions on the world
economy as China represents 16 % of the world economy as compared to 3% in 2003
(Fernandes, 2020). The result of the experiment illustrated that day to day growth rate of
confirmed cases and deaths both hurt the stock returns of different organizations (Al-
Awadhi et al., 2020). Moreover, the pandemic originated in Wuhan - China, then spread
to Asian countries and finally globally.
However, any shock to the Chinese economy has profound effects on the world
economy as China accounts for 16% of the world economy compared to 3% in 2003
(Fernandes, 2020). Before the impact of the pandemic, the Chinese economy was
initially severely affected but still recovered quickly due to the introduction of the
Vaccine as well as the policies of the Chinese Government that worked in the country.
At the peak of the epidemic, the Chinese economy in particular as well as the global
economy in general gradually recovered but recovered slowly because the current
epidemic is still evolving quite complicatedly.
For example, research by Mishra, Rath, & Dash, (2020) examined the negative
impact of COVID19 on Indian financial markets and compared it with other financial
shocks. And the researchers concluded that the COVID-19 pandemic has a significant
adverse impact on stock market returns across all distressed countries and areas.
According to Ding et al., (2020), stated that an average increase in COVID19 over
two months has resulted in a 12 percent drop in the stock prices all over the world-
which has a strong impact on markets and investor sentiment. Global stock markets set
new historical records. The US stock market has experienced its biggest drop since 1987
and has had to activate the trading pause mechanism three times. March 9, 2020, has
been described as a tumultuous trading day for US stocks with historic levels: With a
drop of 2013,76 points, or 7.79%, Dow Jones had the worst crash. Besides, on March
12, 2020, up to 10 countries outside the US activated the mechanism to suspend
transactions.
In the bond market, bond yields are at record lows. Many countries issue negative
bond interest rates such as Germany's 5-year bond yield is negative to 0.7%% for 10-
year tenor; or Germany and Switzerland together negative 0.56%. In Asia, yields on
Japanese 2-5 year bonds were also negative from 0.11 to 0.13%. The reason is partly
that in the context of the increasingly unstable world economy, investment channels
become riskier, safe assets become scarce, which will attract cash flow.
*Global trade and the FDI
The peak recorded in 2020 is about the serious decrease in investment capital from
abroad, thereby greatly affecting global trade. As noted by the United Nations
Conference on Trade and Development (UNCTAD), FDI inflows from abroad shrank
significantly, from US$1,540 billion in 2019 to less than US $1 trillion. So far, the
epidemic has been complicated in many countries, so economic forecasters say that the
possibility of FDI inflows recovering to the level before the pandemic is very unclear.
Moreover, Global trade - closely linked to global supply chains and FDI flows - is
also being negatively impacted by the COVID-19 pandemic. On August 4, 2020, the
World Trade Organization (WTO) forecasted a 13% decline in global trade in 2020. The
global production structure is highly concentrated, with several major centers in the
world, input suppliers, playing an important role in global value chains and production
networks. Therefore, the COVID-19 shock affecting production centers will seriously
affect global production and trade. In addition, some countries turning to "self-
sufficiency" during the pandemic as a response to the COVID-19 pandemic will further
worsen global trade.
* Outbreak to the Tourism and Travel Industry
The tourism industry contributes 10% of global GDP and is one of each country's
most important service industries.
The disease has spread to 200 countries throughout the world, plunging the world
into unprecedented disaster in the last decade. The tourism industry may lose 50 million
jobs worldwide, according to the World Travel and Tourism Council. Up to June 2020,
if we assume that restrictions on domestic and international travel will be lifted
beginning in June, 30 percent of jobs will be lost, 41 percent of international travel will
be whittled down, and 26 percent of domestic travel will be significantly decreased.

To limit the spread of the virus and boost domestic consumption, all countries have
issued decrees prohibiting all flights to other countries from 14 to 21 days, and of course
one of the hardest-hit days is the airline industry and international tourism. With the
application of the government's policy to reduce the number of passengers, as a result,
some airlines were forced to stop operating. Such as Polish Airlines, Baltic Airlines,
American Airlines seeking $50 billion in compensation,...These travel restrictions will
affect the travel industry worldwide and are expected to cost around $200 billion.
In addition, the World Travel and Tourism Council (WTTC) mentioned that due
to the coronavirus pandemic situation, more than 50 million jobs have been cut in the
tourism industry. Experts say that it will take nearly 10 months for the tourism industry
to recover slightly
*The World Banking System
To limit the negative impacts on the economy, the Central Banks of the countries
have implemented precedent-easing policies such as: continuously lowering operating
interest rates, applying negative interest rate policies, controlling profits. bond interest
rates… This affects deposit interest rates and lending rates.
 Bad debts will increase in the context of the pandemic and after the pandemic.
Bad debts will increase amid and after the pandemic. As businesses are closed in most
countries, many large businesses that are struggling to find capital may not be able to
repay their loans on time or, in the worst case, default, resulting in a freeze or
bankruptcy.
In the UK, the total provision for bad debts of the five largest banks has reached
22 billion USD, the highest level in many years. In the US, JP Morgan Chase, Wells
Fargo, and Citigroup recently had to set aside an additional $23 billion in provisions to
prop up bad debts.
In China, in the first half of this year, total bank profits fell for the first time in
more than a decade, down 9.4%, or nearly $144 billion. Bad debt in China's banking
system in 2020 also increased by 2.3 trillion yuan compared to 2019, corresponding to a
bad debt ratio of 1.9%, higher than 1.85% in 2019.
* Global debt hits record high
According to the Institute of International Finance, amid the complicated
development of the pandemic, governments in many countries have increased their
support for companies and people. While large enterprises have to struggle to find
alternative sources of funding when forced to suspend business operations due to the
epidemic. This led to a sharp increase in government and business loans.
Typically, the global debt burden has increased by 15 trillion USD in the 3
quarters of 2020, estimated to increase to 277 trillion USD by the end of 2020. For
developed countries, public debt recorded an increase of 432% GDP in the third quarter,
increased by 50 percentage points over the same period. (The US accounted for nearly
half of this increase due to the implementation of many of the largest economic stimulus
packages in the world.) In Europe, public debt increased to 53 trillion USD. In emerging
markets, debt levels increased to more than 248% of GDP, with Lebanon, China,
Malaysia, and Turkey having the largest increase in non-financial debt.
*Balance of Payments of Emerging Markets and Developing Economies (EMDEs)
As mentioned above, this pandemic not only affects countries with large and
developed economies but also has a profound impact on developing countries and
emerging markets (EMDEs), especially on the BOP.
Impacts of Covid – 19 on the trade balance of payments on developing countries such as
(i) The unprecedented capital flight which has led to depreciation, scarcity of hard
currency, debt problems and rising spreads in domestic currency
(ii) the fall in commodity prices
(iii) the contraction in global aggregate demand and supply, which together with lower
commodity prices lead to reduced export earnings
(iv) the decrease in remittances, a major supply of hard currency in several EMDEs and
Low-Income Countries (LICs).
The successive, simultaneous effects of the crisis during the pandemic have
limited the ability and effectiveness of governments to apply fiscal and monetary
stimulus packages. Moreover, the outbreak has also contributed to severe disturbances
in international trade, causing international commodity prices to fall (according to
CEPAL 2020b).
EMDEs governments have adopted unusual monetary and fiscal expansion
policies to contain the incidence of global supply and demand shocks imposed through
the COVID-19 pandemic spreading (Benmelech and Tzur-Ilan 2020) such as: Reduction
in nominal interest rate policies and interventions in domestic debt market.
*The FDI on developing countries
The outbreak of the pandemic has caused a sharp and obvious decrease in FDI inflows
in the service sectors related to consumption such as Aviation, hotels, restaurants,
manufacturing industries, and energy sectors. ,... Foreign investors in the pandemic have
chosen to narrow the source of FDI, causing serious impacts on developing countries. If
global FDI shrinks for a long time, the consequences for developing countries will be
severe and severe because these countries have diverse portfolios of FDI inflows.
Because FDI inflows not only promote export revenue in developing countries but also
create more jobs, have a more positive impact on infrastructure development,
technology transfer, especially in the manufacturing sector export.
Example: Global foreign direct investment (FDI) flows are estimated to decrease by
30% to 40% in the period 2020-2021
PART 2
Question 1: How can explain two-way flow of FPI and FDI (flow into and out of a
country)? Provide examples to illustrate
Capital is essential for economic growth, but since most countries cannot meet their
total capital requirements via domestic resources alone, they turn to foreign investors.
Capital has a certain attraction for foreign investors, especially for countries with great
economic potential because capital is always lacking and has high mobility.
Foreign direct investment (FDI) and foreign portfolio investment (FPI) are the two most
common ways for investors to invest overseas in a foreign economy.
 FDI means an investment made by a firm or individual in one country into business
interests located in another country.
 FPI means investments made in securities and other financial assets issued in
another country such as stocks and bonds of entities located in another country,...
As retail investors increasingly invest abroad, they should be aware of the
differentiations between FDI and FPI, because countries with a high level of FPI may
experience increased market volatility and currency turmoil during times of uncertainty.
Both methods of foreign investment are crucial to global trade and development,
however, FDI is often considered the preferred mode and is less volatile.
FDI versus FPI
The first contrast is the degree of control wielded by the foreign investor. FDI investors
typically take control of domestic firms or joint ventures and actively participate in their
management. FPI investors, on the other hand, are commonly passive investors who are
not deeply engaged in domestic companies' day-to-day operations or strategic plans,
even if they have a controlling interest in them.
The second criteria are that FDI investors are inclined to take a long-term approach to
their investments because it can take years from the planning process to project
implementation. FPI investors, on the other hand, may assert to be in it for the long haul
but quite often have a much shorter investment horizon, especially when the local
economy experienced some fluctuations.
This leads us to our conclusion. Because such assets can be very large and quite illiquid,
FDI investors cannot easily liquidate them and leave a country. Though since financial
assets are highly liquid and widely traded, FPI investors can literally exit a country with
a few mouse clicks.
*The flow of FDI into a country and example to illustrate
- One of the characteristics of FDI is that there is a two-way phenomenon: a country
receives investment and invests abroad in order to take advantage of comparative
advantages between countries.
+The outward outflow of FDI represents transactions that increase investment in the
foreign economy, such as through the purchase of shares or the reinvestment of income,
minus any transactions that reduce investment such as selling equity or borrowing from
resident investors from foreign enterprises.
+ FDI inflows represent transactions that increase foreign investment in businesses
residing in the economy. FDI inflows are expressed in USD and expressed as a share of
GDP.
=> FDI creates stable and long-term linkages between economies.
- FDI is usually done through the new construction or acquisition of part or all of an
existing enterprise, through the purchase of shares to confirm information.
Example to illustrate
1.THE FDI OUTWARD
- The United States and the United Kingdom were the world's largest recipients of FDI
in 2019. According to the World Bank, the US received $479 billion in FDI net inflows,
while the United Kingdom received $299.7 billion. China trails far behind, with $170.6
billion, but foreign investment is at an all-time high, with nearly 2,500 new enterprises
approved each month.
-The graph show the out flow of FDI from 2006 – 2020 in European; OCED the the
total of the world. We can see that the FDI outward recorded many fluctuations,
especially in 2007 with a peak of 2.16 million USD worldwide
- Before falling into the crisis of the epidemic, the total amount of foreign direct
investment flowing into China in 2019 was 137 billion USD, an increase of 5.8%
compared to the previous year.
However, due to the impact of the COVID-19 pandemic, this number dropped 13% in
the first quarter of 2020, before quickly growing again in April, reaching $ 10.14 billion,
an increase of 8, 6% over the same period last year. This shows that FDI inflows into
China are recovering.
2.THE FDI INWARD
As we can see from the chart, FDI flows into the EU, US and China also recorded
record numbers and experienced many fluctuations. Especially when the world boomed
before the wave of the covid 19 epidemic, FDI capital changed sharply, especially in
countries with large economies such as the US and China, reaching the threshold of 0.28
and 0.42 million USD. sequence.
* The flow of FPI into a country and example to illustrate
- The most prominent feature of FPI is its instability
- FDI is not only associated with capital movement but also with technology transfer,
knowledge and experience transfer, creating new markets for both investors and
investment recipients.
- The reversibility of FPI capital flows actually has a negative impact on the economy
and is an inevitable consequence of instability. In just a short time, FPI capital can move
to another market, leaving unpredictable consequences for the economy.
Example to illustrate
The year 2018 was a good one for India in terms of FPI. More than 600 new investment
funds registered with the Securities and Exchange Board of India (SEBI), bringing the
total to 9,246. An easier regulatory climate and a strong performance by Indian equities
over the last few years were among the factors sparking foreign investors' interest.

PART 3
Question 2: How can exchange rate be determined in exchange rate regimes?
Describe the exchange rate regime in Vietnam?
Exchange rate regime: The way in which an authority manages its currency in relation
to other currencies and the foreign exchange market.
An exchange rate is the value of one nation's currency versus the currency of another
nation or economic zone. For example, how many U.S. dollars does it take to buy
one euro.
However, as in the exchange of goods and services, we must consider what determines
that price, because governments can influence and even fix it. As a result, the monetary
authority of a country or currency union manages the currency's relationship to other
currencies and the foreign exchange market via exchange rate regimes, which are the
frameworks within which the price is determined.
Factors impact on the exchange rate
Besides, there are quite a few factors that affect the exchange rate, forcing countries to
plan and analyze carefully before offering an appropriate exchange rate regime for the
current situation.
 Inflation rate : The value of a country's currency is affected by inflation rates. A low
inflation rate usually results in a rising currency value as its purchasing power rises
relative to other currencies. Government debt also plays a part in inflation rates. A
country with government debt (public or national debt owned by the central
government) is less likely to acquire foreign capital, leading to inflation.
 Interest rate: Interest rate rises cause a country's currency to appreciate since lenders
have been offered higher rates, attracting more foreign capital. This can result to an
increase in the value of a currency and, which leads to an increase in the exchange
rate. On the other hand ,cutting interest rates, on the other hand, may cause the
currency to depreciate
 Monetary policy and economic performance: Investors are more likely to seek out
countries with a history of strong economic performance and sound monetary policy.
This, in fact, will raises the demand for and value of the country's currency.
 Some other factors like net export, Government policy, financial crisis, …
Method of determining the exchange rate:
The exchange rate is the price of a currency unit that is established mostly by supply and
demand for that currency in the business, so the exchange rate will rise or fall as
when  supply and demand change. There are various methods for determining the
exchange rate, depending on the nature of the business, the development of the money
market, and the global market for goods and services.
There are 2 ways to determine the exchange rate in the market
a) Determine the exchange rate based on gold parity (Gold parity): This is a method of
comparing the gold content between two currencies.
b) Determining the exchange rate based on purchasing power parity (Purchasing Power
Parity): This method is based on the comparison of purchasing power between two
currencies, used to compare the prices of goods, services, construction develop import
and export business plans and carry out customs operations,
From an economic point of view, there are three types of exchange rates worldwide:
Fixed exchange rate ; Floating exchange rate ; and Pegged float exchange rate
1. Floating exchange rate
Floating exchange rate system of regime is an exchange rate regime that allows market
forces of supply and demand to interact to determine exchange rates between currencies.
In a freely floating exchange rate regime (or fully floating, clean floating, unmanaged
floating), the exchange rate is determined entirely by market forces.
Over time, the exchange rate between the two currencies will change according to
changes in supply and demand. For this reason, floating exchange rates are considered
to reflect market conditions.
Theoretically, a floating exchange rate keeps the balance of payments in balance and
thus, a country adopting a floating exchange rate regime is completely free to pursue
domestic policies without having to subject to foreign obligations. But in reality, the
uncertainty associated with a floating exchange rate tends to create very strong and
random fluctuations, hindering international trade and causing instability in the
economy. domestic economy. This is why countries prefer to manage their exchange
rates before resorting to extremes rather than switching to a fixed exchange rate regime.
Moreover, floating exchange rates are divided into two modes: fully floating rates and
managed floating rates.
*Fully Floating rates
It is governed by the supply and demand of foreign currency and the government does
not intervene in regulating this exchange rate. The value of the domestic currency
against the foreign currency is determined at the point where supply and demand are
equal. When imports increase, the supply of foreign currency will decrease, the foreign
currency will appreciate, and vice versa.
*Managed Floating rates
A government regime that freely chooses to control exchange rate stability without
losing monetary independence. In this form, the exchange rate is considered to be
between floating and fixed regimes
Currently, most countries in the world apply a floating exchange rate policy because of
its flexibility, the central banks and governments may step in if a nation's currency
becomes too high or too low, as well as economic benefits that it brings to countries
such as: Provides for an automatic adjustment of the balance of payment; or reduces the
negative effect of external shocks and the threat of ‘importing inflation’ from outside the
country is reduced ; remove trade account surplus and deficit by automatic adjustment,
…
2. Fixed exchange rate
A fixed exchange rate is one that the government (or central bank) sets and maintains as
the official exchange rate. A price setup will be determined in terms of a major world
currency (usually the US dollar).
In addition, to maintain the domestic exchange rate, the central bank buys and sells local
currency in the foreign exchange market to fix the exchange rate of their home currency.
To ensure that a currency's "pegged" value is maintained, the country's central bank
keeps reserves of foreign currency and gold. They can sell these reserves to engage in
the foreign exchange market to make up for excess demand or to absorb excess supply
of the country's currency.
3. Pegged float exchange rate (Managed Floating Rate )
This is an exchange rate regime in which a given economy's currency is pegged to some
band or value that is either fixed or adjusted on a regular basis. This is part of a
country's exchange-rate policy, and it aids in the stabilization of the exchange rate
between countries. The band is set by international bilateral agreements or by a
monetary authority, and it is adjusted on a frequent basis in response to economic
conditions and metrics.
*The exchange rate regime in Vietnam
a) Exchange rate for the period before 1989
1.Official exchange rate: fixed-rate policy and multiple exchange rates.
This policy is characteristic of the economy. The application of this exchange rate
regime not based on supply and demand factors, but based on factors State's subjectivity
to serve the set plan.
- From November 25, 1955, the official exchange rate between Vietnam Dong and Nhan
Chinese yuan is: 1NDT = 1,470 VND, 1 Ruble (USSR) = 0.5; RMB, cross rate is 735
VND = 1 Ruble.
In addition to the above exchange rate, the State also uses the internal payment rate to
make payments between organizations and units receiving and spending foreign
currency with the Bank for Foreign Trade, calculating state budget revenues and
expenditures when receiving aid in rubles. and distributed to economic organizations for
payment with foreign trade units
=> The peculiarity of Vietnam's exchange rate regime in this period is fixed, which has
revealed many unreasonable aspects because it not only does not show the role of
regulating the exchange rate in balancing the balance of payments. accounting,
regulating reproduction but also inhibiting our country's external economic activities
and causing economic stagnation for a long time.
2.Non-trade rate: The market exchange rate black-market.
Formed and operated according to the laws of the market, there is a large difference
compared to the official exchange rate. Billion. This price has been available since 1985
when the state-owned the owner program to attract foreign investment.
3.2.Reform of exchange rate regime:
From 1989 onward until now, our state has had new guidelines and solutions in foreign
relations, and the exchange rate policy has gradually abolished the foreign trade
monopoly, allowing businesses are allowed to export and import directly with foreign
countries. In addition, the expansion of foreign trade and the exchange rate regime has
also undergone fundamental changes transitioning to a new economic management
mechanism, the exchange rate management mechanism itself was quickly changed
following the actual context. From a multi-rate mechanism, heavily subjective and
subsidized, away from the market, the exchange rate has been adjusted according to the
relations and conditions of economic laws market economy. The State applies more
flexible exchange rate policies in the following stages
b) Floating exchange rate period: 1989-1993
The Vietnamese dong was strongly devalued, and at the same time, the internal and non-
tradable exchange rates were eliminated. Although we still declared to be floating with
regulation, but actually in the time This period, the SBV did not keep up with the
market's movements foreign exchange market. Because the foreign currency market at
this time has many great fluctuations, creating continuous shocks.
=> Generally speaking, during this period, the VND/USD exchange rate tends to
increase and is adjusted by the government close to the free market price, this proves
that the government has begun to float the exchange rate, the supply and demand for
foreign currency has been paid more attention The application of the floating exchange
rate policy has revealed limitations such as:
- The government's foreign currency management did not work as expected want
- The State cannot control the circulation of foreign currency. The escalation of the
dollar price has stimulated the dollar reserve sentiment. Foreign currency, which is
already scarce, is not used for import and export activities, but is also traded round-the-
clock between domestic organizations.
Thus, facing that situation, in 1992, the government chose to change the way of foreign
currency management and innovate the mechanism for operating the VND/USD
exchange rate.
c) The period from 1993 to 1996: The fixed the exchange rate
The SBV established the interbank foreign currency market (1994) in order to manage
the foreign market more closely, improve liquidity and international integration.
The State Bank of Vietnam announced the official exchange rate, allowing commercial
banks to buy and sell foreign currencies within a range of 0.5% and this rate was kept
until 1996.
=> The difference between the official market rate and the black- market rate is quite the
same , which proves that the exchange rate is relatively suitable.
c) The period of flexible exchange rate management with the regulation of the house
country from 1997 to present (Pegged float exchange rate )
In general, transactions on the interbank foreign currency market as well as the foreign
currency market in general decreased. In fact, in the last 6 months of 1997, the demand
for buying foreign currencies was always higher than the demand for selling foreign
currencies, and the market's activities were sometimes stopped. ( The strong appreciation
of foreign currency has increased the demand for loans in VND due to lower interest
rates and no exchange rate risk, causing an imbalance in the supply and demand of VND
in the market.)
=> Our State has expanded the inter-bank transactions from 1% to 5% and then to 10%.
These solutions have also timely contributed to reducing pressure on the exchange rate of
VND.

Chart of exchange rate fluctuations VND/USD from January 2008 to January 2010

Currently, the bank has control over 90% of foreign currency transactions on the market,
has attracted from many sources an additional amount of foreign currency. From 2008 up
to now, the VND/USD exchange rate has many volatility, especially in the free market.
But on the other hand, this policy on the exchange rate in that time still have drawbacks:
-Increasing the price of imported goods and raw materials
->Increasing the cost of importing goods of enterprises
->Increasing inflationary pressure on supply and demand, cost pushing
- Exchange rate risk in business and credit activities of enterprises borrowing USD at
high interest rates and having to import input materials for production
-The direct cause of pressure on inflation creates a new price level in consumption
In conclusion: The government should have a broad strategic vision, adjust the exchange
rate accordingly in the context of integration with the world economy, carry out savings,
investment, production and business activities effective business, contributing to market
stability and macroeconomic stability such as:
Follow the signals on the official foreign exchange market.
Follow the movement trends on the black market.
Capacity building of exchange rate intervention tools

References
*Documents:
1. Al-Awadhi et al., 2020 “Stock market vulnerability to the Covid-19 pandemic:
Evidence from emerging Asian stock markets”
2. Benmelech and Tzur-Ilan 2020 “ The Determinants of Fiscal and Monetary
Policies During the COVID-19 Crisis”
3. Conference on Trade and Development (UNCTAD)
4. Ding et al., (2020) “Corporate Immunity to the COVID-19 Pandemic”
5. Fernandes, 2020 “Economic effects of coronavirus outbreak (COVID-19) on the
world economy”
6. Mishra, Rath, & Dash, (2020) “Does the Indian Financial Market Nosedive
because of the COVID-19 Outbreak, in Comparison to after Demonetisation and
the GST”
7. Morales, & Andreosso-O’Callaghan, 2012 “The current global financial crisis:
Do Asian stock markets show contagion or interdependence effects”
 8. The World Travel and Tourism Council
9. The IMF (2017)
10. SBV of VietNam
11. World Bank Stastisics “The Global Economic Outlook During the COVID-19
Pandemic: A Changed World”

*Websites:
1. https://luanvan1080.com/nhung-bien-doi-trong-chinh-sach-ty-gia-hoi-doai-o-viet-nam-
hien-nay.html
2. https://www.sciencedirect.com/topics/economics-econometrics-and-finance/exchange-
rate-regime
3. https://www.imf.org/external/np/exr/ib/2000/062600.htm
4. https://www.britannica.com/story/how-are-currency-exchange-rates-determined
5. https://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp
6. https://www.oecd.org/coronavirus/policy-responses/foreign-direct-investment-flows-
in-the-time-of-covid-19-a2fa20c4/
7.https://www.researchgate.net/publication/
228830734_The_current_global_financial_crisis_Do_Asian_stock_markets_show_conta
gion_or_interdependence_effects
8. https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-
during-the-covid-19-pandemic-a-changed-world