Tax

Quota E( USD/VND) D1 E( USD/VND)

Tariff Do So
Technical requirement S1 E1
Foreigner house ownership
Demand SBV will buy USD Eo
Supply for USD in VIETNAM E0 on the FX, demand
shift to the right
e1<e0 E1 ∆ = Q2-Q1
VND has appreciated pay the purchase by VND
USD has depreciated amount of VND in circulation
increase>>inflation

0 Q0 Q1 Q2 Quantity Demand for USD in VN:

Tax: VN increase tax imposed on imported good from US, what to happen to exchange rate Supply for USD in VN

USD/VND 23000 VND stronger Factor affecting exchang

VND weaker 23500 1. Event : exchange rate
2.Central bank interventi
Changes in Exchange rate 3. Central bank adjust VN
Export and Export Fully detailed diagram
Inflation USD : VN
Capital flow 1.inflation : prices: consu
Job creation D
S
2. Interest rate
VN interest rate is higher than the US USD in VN D
a)Demand local residents want to buy foreign goods and services S
D shift to the left 3.Income
Supply foreign consumers want to buy local goods and services Vnese income changes: D
S shift to the right American income: S
new E1< E0 : VND has appreciated against USD 4.Government controls
Tax
b) To maintain at E0, central bank will Quota
Tariff
Technical requirement
event: Vietnamese government has just reduced tax applied on imported apples from the U.S. Foreigner house ownersh
how the event affect the exchange rate between USD/VND? The central bank would like to
maintain at the current rate, what actions they will do? Vnese gov increase tax a
US gov release the quota
demand curve move to right 5.expectation
supply curve stay the same Economic risk
new E1 > E0, USD has appreciated, or VND has depreciated Economic growth
central bank will sell USD, OMO purchases
USD/VND a) if the interest rate in VN is higher than the US,
So S1 D shift to the left D1
S shift to the right S1
E1<E0 -VND has appreciated against USD
B) The central bank want to maintain the exchange rate at Eo
E0 so they will buy USD on the FX with an amount of ∆Q = Q2- Q1
the D will move to the right D2
E1 D2 USD reserve will increase
the central bank pays the purchases by VND
D1 Do so amount of VND in circulation will increase
Q0 Q1 Q2 leading to potential inflation effect
c) to avoid the inflation effect, the central bank
will use OMO sales,
The central bank sells bonds to the public
receive VND from the public.
 S1 event:
E( USD/VND) Do So a)Higher inflation in VN>> US
S2 USD appreciated E1>E0
demand shift to the right ( Do - D1)
supply curve shift to the left ( S0- S1)
B) Central bank SELL USD: supply curve shift to the rightS2
with an amount of Q2 - Q1
collect VND to reserve
D1 USD reserve decrease
reduce amount of VND in circulation
then lead to DEFLATION

Qo Q1 Q2 C) Central bank will use OMO purchases

Demand for USD in VN: Vnese consumes US good and ser Central bank buys bond from the public and pay VND to the public

Supply for USD in VNForeigner

Factor affecting exchange rate

1. Event : exchange rate changes ? 5
2.Central bank intervention on the FX 5
3. Central bank adjust VND supply 5 OMO
Fully detailed diagram 5
USD : VN
1.inflation : prices: consumption: D, S
Vnese
American consumers, investors want to invest in Vietnam
2. Interest rate investment flow

1 curve
Vnese income changes: D
American income: S
4.Government controls 1 curve

import
Technical requirement
Foreigner house ownership

Vnese gov increase tax applied on imported apples from the U.S : Demand decrease: shift left
US gov release the quota applied on textiles from Vietnam : S : increase
5.expectation impose
Economic risk D, S
Economic growth
hange rate at Eo
unt of ∆Q = Q2- Q1
pay VND to the public