GROUP 3

INTERNATIONAL
ECONOMICS
I. OVERVIEW OF EXCHANGE RATE
 1. DEFINITION OF EXCHANGE RATE
THE EXCHANGE RATE IS THE VALUE OF ONE
CURRENCY IN RELATION TO ANOTHER CURRENCY. IT
REPRESENTS HOW MUCH ONE CURRENCY IS WORTH
IN TERMS OF THE OTHER CURRENCY.
FOR EXAMPLES

The exchange rate between the

$ and the € is equal to the
number of dollars needed to
purchase one euro.
R ($/€) = 2, this means that €1 is
required to purchase $2
2. ROLE OF EXCHANGE RATE
Use to determine the
value of various
currencies in relation to
each other and is
important in
determining trade and
capital flow dynamics
 Based on the factors that
3. HOW TO KNOW WHEN THE EXCHANGE affect exchange rates:
RATE INCREASES/DECREASES ?
Interest Rates
Inflation Rates
Government Debt
BOP
Supply & Demand in
Foreign Currency
National Income
Political - Economic
Stability
 II. Impact of real exchange rate to
international trade

The real exchange rate (R): The nominal exchange rate (E):
The purchasing power of a currency The price of one currency in terms
relative to another at current of number of units of some other
exchange rates and prices currency

The real exchange rate

= (nominal exchange rate X foreign price index) / (domestic price index)
FOR EXAMPLE
If the German price is 2.5 euros and the U.S. price is $3.40, then
(1.36) x (2.5) ÷ 3.40 yields an RER of 1. But if the German price
were 3 euros and the U.S. price $3.40, then the RER would be
1.36 x 3 ÷ 3.40 = 1.2.
The impact of the real exchange rate

Trade Inflation Employment Debt Capital flows

A higher real exchange A higher real exchange A higher real exchange rate can If a country has a A higher real exchange rate
rate means that exports rate can lead to an make exports less competitive, high level of foreign can make a country more
become more expensive, increase in the price of which could result in a decrease debt, a depreciation attractive to foreign investors,
while imports become imported goods, which in demand for domestic of the real exchange which can result in an increase
cheaper. This could lead can lead to inflation production and potentially lead rate can make it more in capital inflows
to a decrease in exports to job losses difficult to pay back
and an increase in the debt
imports, resulting in a
trade deficit
The real exchange rate plays a significant role
in the competitiveness of a country's exports
on the global market.
A favorable exchange rate can lead to an
increase in exports, which can stimulate
economic growth...
III. SHOULD VIETNAM DEVALUE ITS
CURRENCY?
 A. WHEN A COUNTRY SHOULD DEVALUE THE CURRENCY

Objective aspect Objective aspect

Improve competitiveness more quickly
and effectively than the mechanism for
the economy to self-adjust towards
recession
=> In particular, this policy is often
applied when there is a strong and
prolonged shock to the trade balance.
Decrease in demand for local currency
=> The government will have to use
foreign reserves to buy domestic
currency and when the foreign currency
reserves are exhausted, there is no other
way, the government must devalue the
currency.
 B. REAL STATE
1. In international context
A sequence of major shocks
to the global economy which
have contributed to a
significant rise in inflation and
a global economic slowdown,
leading to substantial
exchange rate adjustments,
notably a strengthening of the
US dollar against most
currencies, reflecting cross-
country differences in shock
exposure and in the pace of
monetary tightening.
Given the central role of the
US dollar as an invoicing
currency, a dollar
appreciation tends to raise
foreign import prices and at
the same time, a surge in
commodity prices,
compounding the impact on
inflation and also been
associated with a tightening
of global financial conditions.
FX intervention may help
mitigate dislocations arising
from exchange rate swings, but
is likely to be effective only if it
is part of a consistent
macroeconomic policy stance
that ensures macro-financial
stability. In particular, a
coherent fiscal-monetary mix is
essential to avoid disruptive
exchange rate movements that
may arise from fears of fiscal
dominance.
 The exchange rate tends to increase

B. REAL STATE It is stable every year (about 1-2%),

except for some milestones such as the
1. In Vietnam's context highest devaluation in history
(9.3%/year)

In the first 5 months of 2021, the

central rate had the highest decrease of
21 dong, while the highest increase was
19 dong

The exchange rate and export turnover

of Vietnam in the US market fluctuate in
the same direction and tend to increase

However, the rate of increase of the

exchange rate and export varies, even
at certain times, such as January 2020,
although the exchange rate increases,
exports are reduced
Vietnam exchange rate adjustment
FIRST
ADJUSTMENT

A higher real exchange rate means that exports

become more expensive, while imports become
cheaper. This could lead to a decrease in exports and
an increase in imports, resulting in a trade deficit
Vietnam exchange rate adjustment
FIRST
ADJUSTMENT

Specifically, the average interbank USD/VND

exchange rate applied for 11/26/2009 is
17,961 VND/USD, up nearly 1,000 VND (5.5%)
from 17,027 VND/USD.
=> Help reduce stress in the foreign
exchange market.
Vietnam exchange rate adjustment
FIRST SECOND
ADJUSTMENT ADJUSTMENT

On February 10, 2010, the Central Bank of Vietnam

again decided to sharply increase the interbank
exchange rate between VND and USD 3.3% and
officially applied the rate. With an exchange rate
fluctuation range of +/-3%, banks can buy/sell USD
at a ceiling price of 19,100 VND/USD, which is 3%
higher than the interbank rate.
Vietnam exchange rate adjustment
FIRST SECOND
ADJUSTMENT ADJUSTMENT

PURPOSE
Harmonize the supply and demand of
foreign currencies, increase circulation in the
foreign currency market, and contribute to
controlling trade deficit and stabilizing the
macroeconomy.
Vietnam exchange rate adjustment
FIRST SECOND THIRD
ADJUSTMENT ADJUSTMENT ADJUSTMENT

The most recent time, on August 18th 2010, Vietnam

State Bank decided to raise the exchange rate between
VND and USD increased by 2.1%. The ceiling exchange
rate of USD/VND that can be traded will increase to
19,500 VND/USD. From the beginning of 2010 to now,
the USD/VND exchange rate has been increased by
5.27% in total.
Vietnam exchange rate adjustment
FIRST SECOND THIRD
ADJUSTMENT ADJUSTMENT ADJUSTMENT

PURPOSE
Reduced pressure on the dong over the past
two months due to pressure pressure from high
trade deficit, pressure from credit in foreign
currency, from inflation and psychological
expectations of the people.
 Should the Vietnamese
government devaluate the
exchange rate to boost
exports?
 According to IMF, it’s necessary to have a safe foreign currency reserve of 6
months’ worth of imports during a devaluation. In terms of the production capacity
of import substitution goods, developing economies, such as VN, there are some
goods that these economies can not produce or the quality may not be as good or
the price may be higher.
Domestic brands cannot be outweighed
by skincare products that come from big
foreign brands
Even though imported
goods are more
expensive, consumers
are unlikely to choose
domestic products.
3 biggest "powers" of the Vietnamese
auto market at this time, Toyota,
Hyundai and Thaco
THANK YOU FOR YOUR ATTENTION !