FPT UNIVERSITY- CAMPUS CAN THO

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Cần Thơ, …./2023

Table of content
I.CHAPTER 1: GENERAL THEORY OF EXCHANGE RATES

1.1.Concept:

1.2. Exchange rate systems:

1.3. The relationship between interest rates and exchange rates according to the Fisher
effect:

II.CHAPTER 2: REALITY OF RUB/USD EXCHANGE RATE FROM THE

RUSSIA - UKRAINE WAR.

2.1. Current situation of exchange rate RUB/USD

2.2. Impact of RUB/USD exchange rate on the world economy

2.3. Impact of the Russian-Ukrainian war on Vietnam's economy

III.CHAPTER 3: OPPORTUNITY TO CHANGE THE POSITION OF

CURRENCIES FROM THE CONFLICT Russia - UKRAINE

IV.References

FOREWORD
The Russia-Ukraine incident significantly affected worldwide payments and trade in
the interconnected market economy. The rise in hostilities between Russia and
Ukraine has increased risks and uncertainties in global commerce and payment
operations.

The economic situation in Russia and Ukraine has been significantly impacted, which
is one of the primary impacts. A fall in demand as well as a decline in the value of the
Russian ruble and the Ukrainian hryvnia have resulted from the escalation, which has
also generated instability and decreased trust among investors and foreign business
partners. International commerce and payments have been impacted by the economic
slump in Russia and Ukraine, with a decrease in the amount and magnitude of goods
transactions.

I.CHAPTER 1: GENERAL THEORY OF EXCHANGE RATES

1.1. Concept:

The term "foreign exchange rate" refers to the rate at which two distinct currencies are
converted. It is used in the fields of finance and banking. The value of each currency
in relation to another is determined by the exchange rate.

Example: An exchange rate is frequently stated as a number, such as 1 USD = 23,530

VND or 1 USD = 23,530 VND for the US dollar (USD) and Vietnamese dong (VND)
respectively. Due to supply and demand dynamics in the foreign exchange market as
well as economic, political, and other reasons, exchange rates can alter over time.

1.2. Exchange rate systems:

1.2.1. Floating exchange rate (flexible - applied from 1971 - 1980)
In macroeconomics and economic policy, a floating exchange rate is a type of
exchange rate system. In this method, the defined parity is not a constraint on a
currency's value and it is permitted to vary on the foreign exchange market. The link
between currency supply and demand on the foreign exchange market is the
foundation for floating exchange rates. ( MICHAEL J BOYLE, 2022 )
The floating exchange rate regime contains drawbacks in addition to benefits, such as
flexibility and balance of payments. International trade and the domestic economy
may become unstable as a result of the unpredictability and volatility of floating
exchange rates. Because of this, several nations opt to control their exchange rates
before implementing a fixed exchange rate system.
1.2.2 Fixed exchange rate: Bretton Wooods (1944 - 1971)
The United Nations Monetary and Financial Conference, which was held at Bretton
Woods, New Hampshire, with the participation of representatives from 44 countries,
formed the Bretton Woods Agreement, which was drafted in July 1944. The pact
intends to establish a stable foreign exchange market, stop competitive currency
depreciation, and foster global economic expansion. The International Monetary Fund
(IMF) and the World Bank were both established as a result, laying the groundwork
for the post-World War II economic system. (James Chen, 2022 )
The Bretton Woods System was fully operational in 1958, but throughout its life, it
has had difficulties. When President Richard M. Nixon declared that the United States
would no longer swap gold for American currency in the early 1970s, this
arrangement came to an end. This "Nixon Shock" decision put an end to the fixed
exchange rate system put in place by the Bretton Woods Agreement.
The Bretton Woods Agreement and System, despite its eventual downfall, had a long-
lasting effect on the global monetary system. The IMF and World Bank still play a
significant part in fostering world financial stability, providing funding to nations, and
supporting international development initiatives.
1.2.3. Managed floating exchange rate system (non-homogeneous - Applied from
1980 to present)
A managed floating exchange rate system is one in which central banks act to ensure
exchange rate stability as currency exchange rates vary in response to market supply
and demand. under actuality, the benefits of both a fixed exchange rate regime and a
freely floating exchange rate regime are combined under this arrangement.

In a managed floating rate regime, the central bank makes market interventions to
affect the exchange rate but does not commit to maintaining a fixed rate or a range of
movements around the exchange rate center. Because the central bank participates in
market intervention, this system is often referred to as a "dirty floating rate" system.

The controlled floating exchange rate system has the benefit of having a generally
stable exchange rate, which helps to stabilize the economy and advance global
economic connections. Additionally, it guarantees the monetary policy's relative
independence and reduces the economy's vulnerability to outside shocks. The central
bank will require enough hard currency to interfere in the market as needed and to
decide how much to intervene in order to preserve this regime. If not, the system may
transition to a fixed exchange rate regime. (Thanh Hoa, 2019 )
1.3. The relationship between interest rates and exchange rates according to the
Fisher effect:

1.3.1. The theory of interest rate parity

A hypothesis in the areas of finance and foreign exchange is the theory of interest rate
parity (IRP). According to this idea, the gap between the forward and spot exchange
rates equals the interest rate difference between two nations. As contrast to a spot rate,
which is the rate at that moment in time, a forward exchange rate is the rate at some
point in the future. In terms of arbitrage, the future exchange rate is essential to the
notion of interest rate parity.

The "swap point" refers to the difference between the forward rate and the spot rate.
This difference is known as a surplus if it is positive, and a deduction if it is negative.

For instance, if one currency has a lower interest rate than another, it will trade at a
profit relative to the currency with the higher interest rate. For instance, the Canadian
currency often trades at a discount to the US dollar, whereas the US dollar typically
trades at a premium against the Canadian dollar.

The notion of interest rate parity, which links interest rates, spot rates, and exchange
rates, is crucial in the foreign currency market. It aids professionals and investors in
forecasting and assessing changes in foreign currency rates and interest rates.

1.3.2. Rate Adjustment Tool

Exchange rate regulators are measures taken by the government or central bank of a
nation to keep exchange rates fixed or to intervene to keep them stable in the foreign
exchange market. Achieving economic objectives including price stabilization,
fostering economic growth and full employment, balancing the current account, and
reining in inflation may be done with this instrument.
The two primary categories of exchange rate control tools are direct instruments and
indirect instruments.
Governments and Central Banks can act directly in the foreign currency market to
keep exchange rates steady or to control exchange rate variations by using direct
exchange rate adjustment mechanisms. These tools consist of: Devaluation: Updating
the government's initial pledge to lower the value of the local currency in relation to
the foreign currency. Revaluation: Decreasing the exchange rate from the agreed-upon
level in order to raise the local currency's value relative to the foreign currency.
Additionally, the Central Bank's involvement in the foreign exchange market include:
Depending on the goal of foreign exchange, the Central Bank engages in local and
international currency trading to preserve a stable exchange rate or to influence
exchange rate changes. aims of the country's economic policy. The Central Bank has
to have enough foreign exchange reserves in order to step in.
A collection of techniques known as indirect exchange rate adjustment tools are
employed in monetary policy to modify the operational goals of monetary policy by
way of the market mechanism. These instruments are directed at intermediate goals
like interest rates and the money supply. Tools for indirect exchange rates might be:
First, the DTBB (Reserve Required): This is the amount that commercial banks must
keep on deposit with the central bank. A percentage of the total deposit balance at a
specific moment is used to calculate the necessary reserve level. The second is the
Rediscount Policy, which outlines the lending guidelines and requirements for
commercial banks from the central bank. To give commercial banks money, the
central bank can discount short-term valued papers like Treasury bills and commercial
paper. Finally, open market operations refer to actions taken by central banks to
purchase and sell assets on the open market. Both directly and indirectly, these actions
may have an impact on commercial banks' reserves and interest rates.
II.CHAPTER 2: REALITY OF RUB/USD EXCHANGE RATE FROM THE
RUSSIA - UKRAINE WAR.

2.1. Current situation of exchange rate RUB/USD

The Russian currency increased on April 25 to 77 rubles per euro, according to
Reuters. This is the highest rate in over two years, and it is being sustained by the fact
that businesses must make tax payments this week and by the fact that the market is
anticipating the Central Bank of Russia's rate announcement on April 29.
The ruble increased 3.6% to trade at 77.25 rubles/euro at 14:53 GMT (21:53 Vietnam
time) on April 25, reaching its highest level since June 2020. Prior to February 24,
when Russia started its military action in Ukraine, the ruble was trading at a rate of
73.17 rubles to the dollar, increasing by more than 3%. The ruble's exchange rate on
February 24 was 81 to the US dollar.
Trading volume is still lower than it was before February 24, though. The Central
Bank instituted capital controls to reduce the volatility of the ruble since, following
the Western sanctions, the bank was no longer able to sustain the currency through
operations in foreign exchange markets. Nearly half of the nation's reserves are frozen
by the West. According to economists surveyed by Reuters, the record 3 trillion rubles
($40.25 billion) in taxes that businesses must pay this month will boost the currency.
Some export-oriented businesses must sell foreign currency in order to make
payments.
2.2. Impact of RUB/USD exchange rate on the world economy

The relationship between the US dollar (USD) exchange rate and the Russian ruble
(RUB) can have a variety of impacts on the world economy. Here are a few possible
effects:

The capacity of a country or area to effectively engage in international commerce and

compete with other nations on the global market is referred to as trade and export
competitiveness. The quality, affordability, and distinctiveness of a country's products,
as well as its capacity to fulfill consumer wants, access foreign markets, and adjust to
shifting global trade conditions, are among the numerous elements that influence that
country's success in exporting goods and services. It is crucial to take into account a
number of factors in order to comprehend trade and export competitiveness:
Performance in exports, supply-side expertise, product and geographic specialization,
regulatory environment, and market dynamics.

Russia is a big exporter of energy products, particularly oil and natural gas, and the
value of the Ruble relative to the US dollar can significantly affect a company's
earnings. shipments of energy to Russia. The price of energy items priced in rubles
may rise as the ruble declines versus the dollar, bringing in more money for Russia. As
of right now, a number of reasons, including declining oil prices, Western sanctions
aimed at Russia's energy industry, and the ongoing war in Ukraine, have caused the
Ruble to fluctuate versus the Dollar. The Russian economy and the value of the ruble
were significantly impacted by these events. (Clare Sebastian, 2022 )

Due in large part to the decline in oil prices and Western sanctions, the Ruble's value
versus the Dollar fell to an 8-month low in December 2022. The ruble has lost 18% of
its value versus the dollar since the beginning of that month, continuing its downward
trend. The ruble kept losing value and fell to its lowest point since the end of April.
Russia's energy exports have been impacted by the declining currency. The price of
energy items in rubles rises when the ruble depreciates against the dollar. The fact that
energy export prices are set in dollars and that a stronger ruble would result in larger
revenues when translated back into rubles favors Russia in this circumstance. Along
with currency rate fluctuations, the depreciation of the ruble and Western sanctions
have a substantial influence on the Russian economy. The war in Ukraine-related
sanctions imposed by Western countries have caused the ruble's value to fall and
created a number of economic difficulties for Russia. These difficulties include
depreciating currencies, rising interest rates twice as fast, bare stores, shuttered stock
exchanges, and long lines at banks. Russians were impacted by these events on many
different levels, including the working class and the emerging middle class.

2.3. Impact of the Russian-Ukrainian war on Vietnam's economy

The Vietnamese economy was significantly impacted by the Russo-Ukrainian conflict.
Businesses and economic ties between Vietnam and Russia and Ukraine have been
affected to some extent by the war. Vietnam is not exempt from the effects of the
sanctions that Western nations including the United States, European Union, United
Kingdom, Australia, and Canada have placed on Russia.
The banning of Russia from the SWIFT international financial messaging system was
one of the biggest effects of the conflict. Vietnamese businesses who sell goods and
products to Russia are having trouble being paid by Russian authorities and
organizations. The absence from the SWIFT system has complicated business dealings
between Vietnam and Russia, which has a bearing on bilateral commerce between the
two nations. Due to these Western sanctions, Vietnamese companies with extensive
economic links to Russia, including Phuc Sinh Group, have claimed considerable
income losses. (Thoi Nguyen, 2022 )
The conflict has had a particularly negative impact on Vietnam's agriculture industry,
and firms have been forced to adapt in order to survive. Vietnamese company owners
doing business with Russia are concerned about the removal of Russia from the
SWIFT system, particularly about collection. Vietnam's agricultural production was
further hampered by the high global petroleum prices brought on by the conflict,
which also affected the import and export of agricultural, forestry, and fisheries
products. Sanctions have also caused certain Vietnamese shipping lines to decline
orders to convey commodities from Vietnam to Russia, which has further hampered
commerce.
Market turbulence brought on by the war between Russia and Ukraine also affected
commercial and trade relations between Vietnam and the two nations. Directly
impacted are the circulation of products, the settlement of business obligations, and
inflation. The effects of the crisis are being felt by Vietnamese businesses engaged in
collaboration projects with partners in Russia, Ukraine, Belarus, and other impacted
nations. The violence has caused supply chain disruptions, which have complicated
the import and export of products.(Hoang Viet, 2022 )
Vietnam's economy is largely focused on commerce, and in the Eurasian area, both
Russia and Ukraine are significant trading partners. Vietnam's exports will account for
3.2 billion USD of the 5.5 billion USD in bilateral trade transaction between Vietnam
and Russia in 2021. Ongoing hostilities will negatively impact commerce between
Vietnam and these two nations. Among the immediate effects of the battle on
Vietnam's economy include market swings, inflation, disruptions to the flow of
products, and difficulty in paying for business contracts. Vietnam is worried about the
harm that conflict does to international law and order, peace among states, and trade in
addition to these other issues. All nations' independence, sovereignty, and territorial
integrity are at risk, but smaller ones like Vietnam are particularly vulnerable.
Concerns are raised regarding the stability and security of the Asia-Pacific region and
the rest of the globe due to violations of international rules and standards. (Hoang
Viet, 2022 )
Overall, due to high gas costs and transportation issues, the Russia-Ukraine war has
interrupted Vietnam's economic contacts, produced payment issues, and impacted the
agriculture sector. The economy of Vietnam is more at danger if the conflict continues,
highlighting the necessity for peace and security in the area.

III.CHAPTER 3: OPPORTUNITY TO CHANGE THE POSITION OF

CURRENCIES FROM THE CONFLICT Russia – UKRAINE

The war between Russia and Ukraine has had a substantial impact on worldwide
commerce and payments, potentially shifting the relative importance of various
currencies in global settlements.

Trade and financial systems throughout the world have been affected by the war
between Russia and Ukraine. At the end of February 2022, a military confrontation
between Russia and Ukraine erupted, prompting an immediate response from the US,
Japan, and many other European nations. On February 26, the European Commission,
the United States, France, Germany, Italy, the United Kingdom, and Canada issued a
joint statement in which they announced the withdrawal of key Russian banks from
the SWIFT system, which is run by the Association of Financial Telecommunications.
More than 11,000 banks and financial institutions from more than 200 countries are
linked via the international payment system SWIFT. Being cut off from SWIFT
required Russia to cease its USD transactions with the majority of the SWIFT system
members, severely disrupting its international economy. (Nguyễn Đại Lai, 2022 )
Similar to how sanctions affected the Iranian economy a decade ago, excluding
Russian banks from SWIFT might have catastrophic implications on the Russian
economy. As part of international sanctions on Iran because of its nuclear program,
SWIFT cut off Iranian banks in 2012. Iran thus lost 50% of its income from oil
exports and 30% of its income from international commerce. Other nations that
conduct business with Russia as well as European Union members and other nations
that largely rely on energy imports are also impacted by the lack of connectivity to
SWIFT. Russian amount. Businesses involved in cross-border commerce with Russia
are also impacted. Due to its exclusion from SWIFT, Russia has aggressively worked
to replace its reliance on SWIFT by integrating its local payment system with that of
China. This effort aims to discover alternate avenues for conducting international
transactions while minimizing the effects of Russian banks losing their access to
SWIFT.
Additionally, the war between Russia and Ukraine has given rise to a chance to
quicken the Renminbi (RMB)'s internationalization. Due to the conflict's exposure of
these flaws, some Chinese trading partners have temporarily stopped using US dollars
to transact with Russia. Russia, one of China's major coal suppliers, has begun to
accept Chinese Yuan (CNY) payments in instead of US dollars. The dominance of the
USD in global commerce may be challenged by this change, as well as other bilateral
payments made in CNY and Russian rubles. (Hoang Hai, 2023 )
In conclusion, the war between Russia and Ukraine has caused delays in international
payments and commerce, particularly as a result of the removal of Russian banks from
SWIFT. Due to this circumstance, it is now possible for the status of other currencies
in international settlements to alter, perhaps leading to the internationalization of the
Chinese currency.

IV.References :
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Floating Exchange Rate) là gì? Vietnambiz. https://vietnambiz.vn/che-do-ti-gia-tha-
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Sebastian, C. (2022, December 29). Ruble hits 8-month low against dollar, as falling
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Xung đột Nga - Ukraine: cơ hội thúc đẩy quốc tế hóa đồng Nhân dân tệ - Nghiên Cứu
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