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Introduction
The International Monetary System (IMS) is a set of rules and institutions that govern the
exchange of currencies between countries. It is important for Vietnam to understand the IMS
because it plays a key role in the country's economic development.
There are two main theories of the IMS: the Bretton Woods system and the flexible exchange
rate system.
The Bretton Woods system was established in 1944 and was based on the US dollar
as the world's reserve currency. Under this system, all other currencies were pegged to
the US dollar, which was in turn pegged to gold. This system helped to stabilize
exchange rates and promote global trade.
The flexible exchange rate system was adopted in 1971 and allows currencies to
fluctuate freely in response to market forces. This system is more flexible than the
Bretton Woods system, but it can also be more volatile.
Vietnam has adopted a flexible exchange rate system with a managed float. This means that
the government intervenes in the foreign exchange market to prevent sharp fluctuations in the
Vietnamese dong. The government's goal is to maintain a stable exchange rate that is
conducive to economic growth.
Vietnam faces a number of challenges in its relationship with the IMS. One challenge is the
country's reliance on foreign trade. This makes Vietnam vulnerable to fluctuations in global
demand and exchange rates. Another challenge is the country's large foreign debt. This debt
makes Vietnam vulnerable to financial crises.
However, Vietnam also has a number of opportunities in its relationship with the IMS. The
country is experiencing rapid economic growth and is becoming increasingly integrated into
the global economy. This presents Vietnam with opportunities to attract foreign investment
and expand its export markets.
Recommendations
Vietnam can take a number of steps to strengthen its relationship with the IMS. These steps
include:
Managing foreign debt: Vietnam should continue to manage its foreign debt
prudently. This will help to reduce the country's vulnerability to financial crises.
Strengthening financial institutions: Vietnam should continue to strengthen its
financial institutions. This will make the country's financial system more stable and
resilient.
Participating in international financial institutions: Vietnam should continue to
participate in international financial institutions. This will help the country to
influence the development of the IMS and promote its own interests.
Conclusion
Vietnam is a dynamic and developing economy that is increasingly integrated into the global
economy. The IMS plays a key role in Vietnam's economic development. By understanding
the theories and realities of the IMS, Vietnam can take steps to strengthen its relationship
with the IMS and promote its own economic interests.
Introduction
The foreign exchange rate is the price of one currency expressed in terms of another
currency. It is a key determinant of a country's international competitiveness and trade flows.
Vietnam's foreign exchange rate policy is an important component of the country's
macroeconomic policy framework.
There are two main theories of foreign exchange rate determination: the purchasing power
parity (PPP) theory and the uncovered interest parity (UIP) theory.
The PPP theory states that exchange rates should adjust over time to equalize the
prices of goods and services in different countries. According to this theory, changes
in the exchange rate should reflect changes in relative inflation rates between
countries.
The UIP theory states that the expected return on an investment in a foreign currency
should be equal to the expected return on an investment in the domestic currency.
According to this theory, the difference between interest rates in two countries should
be equal to the expected change in the exchange rate between the two currencies.
Vietnam has adopted a flexible exchange rate regime with a managed float. This means that
the government intervenes in the foreign exchange market to prevent sharp fluctuations in the
Vietnamese dong. The government's goal is to maintain a stable exchange rate that is
conducive to economic growth.
The State Bank of Vietnam (SBV) is responsible for formulating and implementing
Vietnam's foreign exchange rate policy. The SBV uses a variety of tools to manage the
exchange rate, including:
Open market operations: The SBV buys and sells foreign exchange in the open
market to influence the supply and demand of foreign currency.
Intervention in the foreign exchange market: The SBV can directly intervene in the
foreign exchange market to buy or sell foreign currency.
Foreign exchange reserve management: The SBV manages the country's foreign
exchange reserves, which can be used to intervene in the foreign exchange market.
Vietnam faces a number of challenges in managing its foreign exchange rate. One challenge
is the country's reliance on foreign trade. This makes Vietnam vulnerable to fluctuations in
global demand and exchange rates. Another challenge is the country's large foreign debt. This
debt makes Vietnam vulnerable to financial crises.
However, Vietnam also has a number of opportunities in managing its foreign exchange rate.
The country is experiencing rapid economic growth and is becoming increasingly integrated
into the global economy. This presents Vietnam with opportunities to attract foreign
investment and expand its export markets.
Recommendations
Vietnam can take a number of steps to strengthen its foreign exchange rate management.
These steps include:
Conclusion
The foreign exchange market (forex market) is a decentralized global marketplace where
currencies are traded. It is the most liquid market in the world, with an estimated daily trading
volume of over $5 trillion. The forex market plays a vital role in facilitating international
trade and investment flows.
Vietnam's foreign exchange market is a relatively young and developing market. However, it
has grown rapidly in recent years, driven by the country's rapid economic growth and
integration into the global economy. The forex market in Vietnam is primarily over-the-
counter (OTC), meaning that trades are conducted directly between counterparties. There is
also a small interbank market, where banks trade currencies with each other.
There are two main theories of foreign exchange market: the efficient market hypothesis
(EMH) and the behavioral finance theory (BFT).
The EMH states that exchange rates are rational and reflect all available information.
This means that it is impossible to consistently beat the market by trading on
fundamental analysis or technical analysis.
The BFT states that exchange rates are not always rational and can be influenced by
psychological factors, such as herd behavior and overconfidence. This means that it
may be possible to beat the market by trading on behavioral biases.
The development of Vietnam's foreign exchange market has been supported by a number of
factors, including:
Market liquidity: The forex market in Vietnam is still relatively illiquid, which can
make it difficult to execute large trades.
Exchange rate volatility: The VND is a volatile currency, which can make it difficult
for businesses to hedge against exchange rate risk.
Regulation: The forex market in Vietnam is still heavily regulated, which can make it
difficult for foreign banks to operate in the market.
Despite these challenges, there are also a number of opportunities for the development of
Vietnam's foreign exchange market. These opportunities include:
Recommendations
Vietnam can take a number of steps to further develop its foreign exchange market,
including:
Conclusion
The foreign exchange market plays a vital role in the Vietnamese economy. By continuing to
develop its foreign exchange market, Vietnam can further integrate into the global economy
and promote economic growth.
The foreign exchange rate (FX rate) plays a significant role in influencing various economic
activities in Vietnam. Changes in the FX rate can have both positive and negative
consequences for businesses, individuals, and the overall economy.
Impact on Businesses
Impact on Individuals
Tourism: A depreciating VND makes Vietnam more affordable for foreign tourists,
potentially boosting tourism revenue.
The Vietnamese government and businesses can adopt various strategies to manage the
impact of FX rate fluctuations:
Hedging: Businesses can use financial instruments like derivatives to hedge against
FX risk.
Diversification: Businesses can diversify their export markets to reduce reliance on a
single currency.
Risk Management: Businesses can develop robust risk management strategies to
proactively address FX-related risks.
Policy Interventions: The government can implement monetary and fiscal policies to
stabilize the FX rate.
Conclusion
The FX rate plays a crucial role in shaping Vietnam's economic landscape. Understanding the
impact of FX rate fluctuations on businesses, individuals, and the overall economy is
essential for effective decision-making and risk mitigation strategies. By managing FX risk
effectively, Vietnam can foster a more resilient and competitive economy.
1 . Analyze the factors that impact on the trade balance . Current status of the trade
balance in Vietnam .
Bản giải 1:
1.Inflation: Inflation increases prices and costs. As prices and costs in any country rise
rapidly, domestically produced goods soon become more expensive than similar goods
produced abroad. This reduces exports, increases imports. Thereby affecting the balance of
trade.
2.Commodity prices: When the prices of domestic goods are high relative to foreign goods,
the demand for imports will increase, which affect the balance of trade
4. Exchange rate: An appreciation of the domestic currency significantly increases the cost
of exported goods, so the quantity of exports will decrease and affect the trade balance.
5. Trade policy: Trade barriers or supportive policies also affect a country's balance of
exports and imports. For example, when there is an export subsidy, a country will export
more and affect the balance of trade.
6. Income : Increased income increases the demand for goods, including imported goods.
This causes a country to import more and affects the balance of trade.
In the context that the fourth wave of the Covid-19 pandemic continues to develop
complicatedly in Viet Nam, it has had a negative impact on the production and business
activities of our country. Some provinces and cities with large industrial scale such as Ho Chi
Minh City, Binh Duong, Ha Noi, Bac Ninh and Bac Giang have had a high number of cases,
many industrial parks have to close, many factories have to suspend production. Production
and export activities of some enterprises in industrial zones were affected. However, in the
first 6 months of 2021, Viet Nam’s import and export still achieved some encouraging
results: Total export and import turnover in the first 6 months reached 316.73 billion USD,
rose by 32.2% over the same period in 2020; in which, import turnover continued to maintain
at a fairly high growth rate of 36.1%, reaching 159.1 billion USD. Import turnover from
major markets increased sharply over the same period in 2020: China increased by 53%;
Korea increased by 21.1%; ASEAN increased by 47.7%; EU increased by 16.3%.
Import value of many items increased sharply over the same period in 2020, of which
automobiles increased by 78.4%; other basic metals increased by 59.9%; plastics rose by
54.9%; phones all of kinds and their parts increased by 48.7%; iron and steel rose by 40.8%;
machinery, instrument, accessory increased by 37.3%; chemical products went up by 34.5%;
auxiliary materials for textile, footwear increased by 34.2%; fabric increased by 32.3%;
electronics, computers and their parts increased by 22.9%; plastic products increased by 22%.
One of the reasons for the sharp increase in the import value of items is that the import price
index in the first 6 months of 2021 increased by 2.24% over the same period last year (in the
second quarter of 2021, it increased by 3.28%). In which, import prices of some important
products for processing and production increased: Other basic metals increased by 12.8%;
iron and steel increased by 7.65%; fabric increased by 1.65%;
electronics, computers and their parts rose by 1.62%; machinery, instrument, accessory
increased by 0.56%.
Import turnover in 6 months grew higher than export turnover (import increased by 36.1%;
exports increased by 28.4%) brought the trade balance in the first 6 months of the year to a
trade deficit of 1.47 billion USD (in the same period in 2020, the trade surplus was 5.86
billion USD). However, considering the structure of imported goods, the group of input
materials accounted for 93.9% of the total turnover, a rise of 0.4 percentage points over the
same period last year; import of input materials reached USD 149.32 billion, rose up by
36.7%; in which the group of machinery, equipment, accessory, means of transport and
components reached USD 71.97 billion, increased by 33% and accounting for 45.2% (went
down 1 percentage point); fuel and raw materials reached 77.35 billion USD, went up 40.2%
and accounting for 48.6% (went up 1.4 percentage point). Consumer goods group was
estimated at 9.78 billion USD, rose by 28% and accounted for 6.1% (a drop of 0.4 percentage
points). Import of input materials has a high growth rate, especially the group of goods for
production, which is the group of fuel and raw materials, increased by 40.2% (the proportion
increased by 1.4 percentage points), showing that signs of production recovery have made
good progress and are positive.
However, if there is no solution to limit the trade deficit, the long-term trade deficit and
especially the trade deficit of consumer goods will partly cause negative impacts in the
economy. The high import of consumer goods, especially luxury consumer goods, will
reduce the competitiveness of domestic goods, causing difficulties for domestic production
activities.
Viet Nam’s economic forecast for the last 6 months of 2021 will continue to face many
difficulties, the effective implementation of “dual goals” is a big challenge, requiring the joint
effort and consensus of the Government, businesses and people , focusing on a number of
contents related to import and export activities as follows: Protecting the health of workers in
enterprises and industrial parks; continue to focus on removing difficulties for production and
business enterprises, recovering the economy,
supporting the business community in finding markets to import raw materials, fuel,
materials, spare parts and replacement components; control and take timely measures to
ensure the supply and prices of imported raw materials, fuels and input materials for domestic
production; use appropriate tax policies in favor of importing raw materials and exporting
finished products; effectively carry out trade promotion activities, promote products and
categories, seek to expand export markets.
Bản 2:
Global factors:
Economic growth of trading partners: A strong global economy boosts demand for
Vietnamese exports, leading to a trade surplus. Conversely, a weak global economy
dampens demand and creates a trade deficit.
Commodity prices: Fluctuations in global commodity prices, especially for Vietnam's
key exports like oil and gas, can significantly impact the trade balance.
Exchange rates: A weaker Vietnamese dong (VND) makes exports cheaper and
imports more expensive, potentially improving the trade balance. Conversely, a
stronger VND has the opposite effect.
Trade policies: Trade agreements and protectionist measures by other countries can
affect Vietnam's export competitiveness and impact the trade balance.
Domestic factors:
Domestic production capacity: Strong domestic production of goods for export can
lead to a trade surplus. Conversely, reliance on imports creates a trade deficit.
Foreign direct investment (FDI): FDI inflows can boost export capacity and
technology transfer, leading to a trade surplus. However, FDI can also increase
imports of machinery and equipment, contributing to a deficit.
Government policies: Government policies like export subsidies, import tariffs, and
infrastructure development can influence the trade balance.
Consumer preferences: A preference for imported goods over domestic alternatives
can widen the trade deficit.
Trade deficit: As of October 2023, Vietnam has a trade deficit. This is due to faster
import growth (around 10%) compared to export growth (around 5%).
High import of input materials: Imports of raw materials, machinery, and equipment
for production are growing rapidly, indicating economic recovery and export
potential.
Concerns about consumer goods: While imports of consumer goods are rising,
policymakers are concerned about potential harm to domestic production
competitiveness.
Overall, Vietnam's trade balance is a complex interplay of global and domestic factors. While
the current deficit raises concerns, the strong growth in imports for production suggests
potential future export gains. The government needs to address the consumer goods import
issue and implement policies to support domestic production and export competitiveness.
Bản 3:
Internal factors:
Economic growth: Higher economic growth leads to greater demand for imports,
potentially causing a trade deficit.
Domestic production: Insufficient domestic production capacity for certain goods
increases reliance on imports.
Domestic consumption: High demand for imported consumer goods can tilt the
balance towards a trade deficit.
Exchange rate: A weak Vietnamese dong (VND) makes imports more expensive and
exports cheaper, potentially improving the trade balance.
Government policies: Tax incentives or trade restrictions can influence the flow of
imports and exports.
External factors:
Trend: In 2021, Vietnam transitioned from a trade surplus to a trade deficit for the
first time in several years.
Concerns: The growing trade deficit, especially for consumer goods, raises concerns
about long-term economic impacts.
Government response: The government is focusing on supporting domestic
production, diversifying exports, and attracting foreign investment to address the trade
imbalance.
Conclusion:
Vietnam's trade balance is influenced by complex interactions between internal and external
factors. While a temporary trade deficit may not be alarming, prolonged imbalances can
negatively impact the economy. The government is proactively addressing the issue, but
continuous efforts are needed to achieve a sustainable trade balance.
2. Analyzing the structure of the current account balance of an open market economy.
The significance of the research problem for Vietnam in the current period.
1. Trade in Goods: This component comprises exports and imports of tangible goods. A
current account surplus in trade in goods indicates that a country is exporting more than it
imports, while a deficit suggests the opposite.
2. Trade in Services: This encompasses the exchange of intangible services, such as tourism,
transportation, and financial services. A surplus in this category implies that a country is a net
exporter of services.
3. Income from Abroad: This component captures income earned by residents of a country
from their investments and work abroad, as well as income earned by foreign residents within
the country. A surplus in this category suggests that a country is earning more from its
foreign investments than it is paying out.
Analyzing the structure of the current account balance holds immense significance for
Vietnam in the contemporary era due to several compelling reasons:
1. Trade Balance Dynamics: Vietnam has experienced both trade surpluses and deficits in
recent years. Understanding the structure of trade in goods and services is crucial for
assessing the competitiveness of its export sector and formulating effective trade policies.
2. Economic Stability Anchor: A well-balanced current account can play a pivotal role in
maintaining economic stability. Vietnam's ability to sustain a stable current account balance
can significantly impact its overall economic stability and its attractiveness to foreign
investment.
3. Foreign Exchange Reserves Buffer: A surplus in the current account can lead to the
accumulation of foreign exchange reserves, which serve as a valuable buffer against currency
market volatility. These reserves can be utilized to stabilize the Vietnamese Dong (VND) in
times of economic turmoil.
5. Policy Implications for Sustainable Growth: The analysis of the current account balance
can guide policymakers in making informed decisions related to trade policy, exchange rate
management, and foreign investment strategies to maintain a balanced current account and
promote sustainable economic growth.
In conclusion, analyzing the structure of the current account balance provides valuable
insights into the economic health and global interactions of a nation. For Vietnam,
understanding this intricate balance is crucial for maintaining trade competitiveness,
economic stability, foreign exchange reserves adequacy, and resilience in the face of global
economic fluctuations. By employing this analysis effectively, policymakers can make
informed decisions that promote sustainable economic growth and long-term prosperity for
Vietnam.
3. Analyzing the role and basic operations of the forex market, on that basis, please
comment on the current situation of the foreign exchange market in Vietnam.
Short version:
The forex market is the global marketplace for trading currencies. It facilitates the exchange
of one currency for another and is used by individuals, businesses, and governments engaged
in international trade and investment. The basic operations of the forex market include spot
transactions, forward contracts, and currency swaps. Spot transactions are the immediate
exchange of currencies at the current market rate. Forward contracts are agreements to
exchange currencies at a future date at a predetermined rate. Currency swaps are the
exchanging of one currency for another with a commitment to reverse the exchange at a later
date.
The current situation of the foreign exchange market in Vietnam is influenced by a number of
factors, including the exchange rate policy of the State Bank of Vietnam, recent exchange
rate movements, global events, foreign exchange reserves, foreign investment, economic
growth, government policies, and market modernization.
Long version:
The foreign exchange market (forex market) is a global decentralized marketplace for trading
currencies, enabling individuals, businesses, and governments to engage in international trade
and investment. It is the largest and most liquid market in the world, with a daily trading
volume exceeding $6.6 trillion.
The primary role of the forex market is to facilitate the exchange of one currency for another.
This exchange is essential for international trade, as it allows businesses to pay and receive
payment for goods and services sold across borders. Additionally, investors use the forex
market to hedge against currency risk and speculate on future currency movements.
Basic Operations
The forex market is characterized by its over-the-counter (OTC) trading mechanism, meaning
that transactions occur directly between two parties without the need for an exchange. The
three main types of forex transactions are:
Market Participants
The forex market is a diverse and complex ecosystem with a wide range of participants,
including:
Central Banks: These are responsible for setting monetary policy and regulating the
financial system. They use the forex market to intervene in the currency market and
manage their foreign exchange reserves.
Commercial Banks: These are the primary providers of forex services to individuals
and businesses. They facilitate currency exchange, provide hedging instruments, and
offer margin trading.
Corporations: These use the forex market to manage their foreign currency exposure
and facilitate international trade and investment.
Investment Funds: These use the forex market to speculate on currency movements
and diversify their portfolios.
Retail Traders: These are individuals who trade currencies in the hope of making a
profit.
The current situation of the foreign exchange market in Vietnam is influenced by various
factors, including:
Exchange Rate Policy: Vietnam's State Bank (SBV) manages the exchange rate
through a managed float regime. The SBV allows the VND (Vietnamese Dong) to
Conclusion
The forex market is a dynamic and complex global marketplace that plays a critical role in
international trade and investment. Understanding the role, operations, and current state of
the forex market is essential for businesses, investors, and policymakers operating in a
globalized economy.
Basic Operations:
Spot Transactions: Immediate exchange of currencies at the current market rate. These
transactions occur "on the spot."
Forward Contracts: Agreements to exchange currencies at a future date at a predetermined
rate, which helps manage currency risk.
Currency Swaps: Exchanging one currency for another with a commitment to reverse the
exchange at a later date.
Market Participants: Include central banks, commercial banks, corporations, investment
funds, and retail traders. They engage in buying and selling currencies to meet various
objectives.
The current situation of the foreign exchange market in Vietnam is influenced by various
factors:
Exchange Rate Policy: Vietnam's State Bank (SBV) manages the exchange rate through a
managed float regime. The SBV allows the VND (Vietnamese Dong) to fluctuate within a
controlled range, adjusting it as needed to support the country's economic objectives.
Recent Exchange Rate Movements: In recent years, Vietnam has experienced relatively
stable exchange rates, with gradual depreciation of the VND against the USD. This stability
has contributed to confidence in the currency.
Impact of Global Events: Global events, such as the COVID-19 pandemic and trade
tensions, can affect Vietnam's foreign exchange market. For instance, the pandemic disrupted
supply chains and affected trade flows.
Foreign Exchange Reserves: Vietnam has been accumulating foreign exchange reserves,
which provide a buffer against currency volatility and help stabilize the VND.
Foreign Investment: Foreign direct investment (FDI) inflows have a direct impact on the
foreign exchange market. Vietnam's attractiveness to foreign investors can influence the
demand for VND.
Economic Growth: Vietnam's strong economic growth and export performance have
contributed to its foreign exchange market stability.
Government Policies: Government policies related to trade, investment, and currency
management play a significant role in the foreign exchange market's current situation.
Market Modernization:Vietnam has witnessed the modernization of its foreign exchange
market, with increased use of digital platforms for forex trading and transactions.
4. Discuss your opinions about the market for foreign exchange and its role in the
development of the economy. Analyze the impact of the Vietnam foreign exchange
market on the development of Vietnam's economy in the last 5 years.
The foreign exchange (FX) market, where currencies are traded, plays a critical role in the
global economy, acting as a facilitator of trade and investment. Its impact on individual
economies, like Vietnam, can be multifaceted, promoting growth while also introducing
potential risks.
Positive impacts:
Trade and investment: A stable and efficient FX market allows businesses to import
and export goods and services smoothly, reducing transaction costs and facilitating
cross-border investment. This can boost export competitiveness, attract foreign
capital, and create jobs.
Economic diversification: A vibrant FX market encourages diversification away
from overreliance on specific exports or trading partners. By hedging currency risks,
businesses can venture into new markets and products, fostering resilience.
Financial stability: A well-regulated FX market fosters financial market
development and stability. This can attract foreign investors, improve access to credit,
and lower borrowing costs for businesses and individuals.
Price discovery: The FX market acts as a barometer of economic health, reflecting
supply and demand for different currencies. This can inform investment decisions and
guide policymakers in formulating sound economic strategies.
Negative impacts:
Overall, Vietnam's FX market has played a crucial role in its economic development
over the past five years. However, navigating the potential pitfalls and ensuring a well-
functioning market remains an ongoing challenge.By striking a balance between
stability and flexibility, Vietnam can leverage the FX market for continued economic
growth and prosperity.
5. Discuss your opinions about the Balance of Payment. Based on your knowledge about
Vietnamese’s balance of Payment, analyze and indicate its role in the economy.
The Balance of Payment (BoP) is a crucial indicator of a country's external financial position,
capturing all economic transactions between residents and non-residents over a given period.
It's like a detailed financial statement, revealing a nation's trade, investment, and borrowing
activities with the outside world. Analyzing Vietnam's BoP offers valuable insights into its
economic health and vulnerabilities.
Current Account: This reflects the net trade in goods and services (exports minus
imports) and income flows from abroad (e.g., dividends, remittances). A surplus
indicates Vietnam is earning more from the world than it spends, while a deficit
shows the opposite.
Capital Account: This captures foreign investments into Vietnam (FDI, portfolio
investments) and Vietnamese investments abroad. A positive capital account signifies
an inflow of foreign funds, while a negative indicates an outflow.
Financial Account: This covers short-term financial transactions like loans, credits,
and changes in reserve assets.
Trade engine: Historically, Vietnam has enjoyed a trade surplus, driven by strong
exports of manufactured goods like garments and electronics. This surplus fuels
economic growth by creating jobs, generating foreign exchange, and attracting
investment.
Investment magnet: Vietnam's capital account has also been positive, reflecting
significant foreign direct investments (FDI) inflows. This FDI boosts productivity,
technology transfer, and infrastructure development, further strengthening the
economy.
Debt management: Responsible borrowing and prioritizing productive investments
in the capital account are crucial to avoid excessive external debt burdens that could
constrain future growth.
Vulnerability to external shocks: Vietnam's dependence on trade and foreign
investment makes it vulnerable to external shocks like global trade slowdowns or
financial market turmoil. A sudden shift in the BoP can trigger currency depreciation,
capital flight, and economic instability.
Widening trade deficit: While Vietnam still enjoys a trade surplus overall, recent
years have seen a concerning trend of widening trade deficit. This is due to faster
import growth, particularly of raw materials and machinery for production, raising
concerns about dependence on imported inputs.
Rising foreign debt: While FDI has contributed positively, excessive reliance on
foreign borrowing can lead to debt sustainability concerns. Balancing growth with
responsible debt management is crucial.
Policy implications:
Conclusion:
Vietnam's BoP plays a pivotal role in its economic growth and development. While
historically favorable, recent trends demand attention. By addressing vulnerabilities,
implementing sound policies, and diversifying its external linkages, Vietnam can leverage its
BoP for continued economic prosperity and enhanced resilience in the face of global
challenges.
Theories:
Bretton Woods System:
Vietnam, like many other countries, participates in the post-World War II
Bretton Woods system. This system established the International Monetary
Fund (IMF) and the World Bank, which play roles in maintaining global
economic stability and providing financial assistance to countries in need.
Exchange Rate Management:
Theories related to exchange rate management play a crucial role. Vietnam
may adopt different exchange rate regimes, including fixed, floating, or
managed floats, to stabilize its currency and promote economic growth.
Open Economy Macroeconomics:
Vietnam's engagement in the international monetary system involves
considerations of open economy macroeconomics. This includes
understanding the impact of international trade, capital flows, and exchange
rate movements on the country's economic performance.
Despite these challenges, Vietnam also has several opportunities in its engagement with the
IMS, including:
The knowledge system for multiple choice questions on the topic of Balance of Payment
includes the following content:
Here are some examples of multiple choice questions on the topic of Balance of Payment:
The BoP encompasses not just trade, but also income flows, investments, and even
changes in official reserves.
This defines a BoP surplus, meaning the country is earning more from the world than it
spends.
All three options can contribute to a BoP deficit, though they impact it in different
ways:
Economic growth: Increased demand for foreign goods and services can lead to
higher imports, pushing the BoP towards deficit.
Exchange rate depreciation: A weaker currency makes imports cheaper and
exports more expensive, potentially widening the trade deficit.
Government subsidies for exports: While intended to promote exports, subsidies
can artificially boost exports, masking underlying competitiveness issues and
potentially leading to future BoP challenges.
o Financial stability
Exchange rate volatility: BoP imbalances can trigger currency fluctuations, making
trade and investment uncertain for businesses.
Remember, a BoP deficit doesn't necessarily mean doom and gloom. It's crucial to assess the
reasons behind the imbalance and implement appropriate policies to ensure long-term
sustainability and economic well-being.
The knowledge system for multiple choice questions on the topic of Exchange Rate and
Supply/Demand of Money includes the following content:
Exchange Rate
o Definition: The exchange rate is the price of one currency in terms of another
currency.
o Determinants: Exchange rates are determined by a number of factors,
including:
Demand and supply: The demand for a currency is determined by the
desire to hold that currency for purposes such as trade, investment, or
speculation. The supply of a currency is determined by the amount of
that currency that is available in the market.
Interest rates: Higher interest rates in a country make that country's
currency more attractive to investors, which can lead to an increase in
the demand for that currency and an appreciation of its value.
Inflation: Inflation can lead to a depreciation of a country's currency,
as it makes that currency less valuable in terms of goods and services.
Government policies: Government policies, such as exchange rate
intervention, can also affect exchange rates.
Supply/Demand of Money
o Definition: The supply of money is the total amount of money in circulation in
an economy. The demand for money is the amount of money that people and
businesses want to hold.
o Determinants of the supply of money: The supply of money is determined by a
number of factors, including:
Central bank policy: Central banks can control the supply of money
by buying or selling government bonds or other assets.
Bank lending: Banks can create money by lending to businesses and
consumers.
Currency in circulation: The amount of currency in circulation is
determined by the public's demand for cash.
o Determinants of the demand for money: The demand for money is determined
by a number of factors, including:
Transactions demand: The transactions demand for money is the
amount of money that people and businesses need to hold to make
everyday purchases.
Here are some examples of multiple choice questions on the topic of Exchange Rate and
Supply/Demand of Money:
An increase in demand for a currency means more people and businesses want to hold that
currency, leading to an appreciation. A decrease in supply means there is less of the currency
available, further pushing the price up.
An increase in supply makes the currency more readily available, putting downward
pressure on its value. Simultaneously, a decrease in demand means fewer people and
businesses want to hold the currency, further weakening its value.
Question 3: Which of the following will lead to an increase in the demand for
money?
o An increase in the level of income
o An increase in the price level
o An increase in the interest rate
As people's incomes rise, they tend to hold more money to cover transactions and
unforeseen expenses, increasing the overall demand for money.
Question 4: Which of the following will lead to a decrease in the demand for money?
When interest rates fall, holding money as a store of value becomes less attractive,
prompting people to convert their money into other assets, leading to a decrease in the
demand for money.
3. Foreign market
The knowledge system for multiple choice questions on the topic of Foreign Market includes
the following content:
Definition of Foreign Market: A foreign market is any market that is located outside
of the home country of a company.
Factors to Consider When Entering a Foreign Market: There are many factors to
consider when entering a foreign market, including:
o Cultural differences: Cultural differences can be a major challenge for
companies entering foreign markets. Companies need to be aware of the
cultural norms and expectations of the target market.
o Legal and regulatory environment: The legal and regulatory environment
can vary significantly from country to country. Companies need to understand
the laws and regulations that apply to their business in the target market.
o Economic conditions: The economic conditions of the target market can have
a significant impact on the success of a company. Companies need to assess
the economic situation of the target market before entering.
o Competition: The level of competition in the target market can be a major
challenge. Companies need to understand the competitive landscape before
entering.
Entry Strategies: There are a number of different entry strategies that companies can
use to enter foreign markets, including:
o Exporting: Exporting is the process of selling goods or services to customers
in another country.
o Licensing: Licensing is the process of granting another company the right to
use a company's intellectual property, such as a trademark or patent, in
exchange for a fee.
o Franchising: Franchising is a business model in which a franchisor grants a
franchisee the right to use its business model, trademarks, and other
intellectual property in exchange for a fee.
o Direct investment: Direct investment is the process of investing in a company
in another country.
Global Marketing Strategy: A global marketing strategy is a plan for how a
company will market its products or services to customers around the world.
International Trade: International trade is the exchange of goods and services
between countries.
Here are some examples of multiple choice questions on the topic of Foreign Market:
o Cultural differences
o Legal and regulatory environment
o Economic conditions
o Exchange rates
While exchange rates play a crucial role in international trade and foreign market
operations, they are not a primary factor to consider when initially assessing the
feasibility of entering a foreign market. Cultural differences, legal and regulatory
frameworks, economic conditions, and competition are more fundamental aspects to
evaluate before venturing into a new market landscape.
A global marketing strategy should consider tailoring products and services to suit the
preferences, cultural nuances, and regulatory requirements of each target market.
Localization involves adapting marketing messages, product features, and service
offerings to resonate with local consumers and comply with local regulations.
International trade encompasses the exchange of goods and services across national
borders. The examples provided accurately represent instances of international trade:
oil importing from Saudi Arabia, car exports from Japan to Europe, and coffee
exportation from Brazil to the United States.
The knowledge system for multiple choice questions on the topic of Monetary System Period
includes the following content:
Here are some examples of multiple choice questions on the topic of Monetary System
Period:
Money is a special commodity, with intrinsic or fiat value, that is used as a medium of
exchange, a means of payment, a store of value, and a unit of account in the economy.
Metallic money has intrinsic value because it can be used directly in production or
consumption.
A fixed exchange rate system is a system in which the value of a currency against
another currency is determined by the government and is maintained by government
intervention measures.
1. Singapore Company X 's foreign currency bonds issued to the U.S. market , worth $ 100
million. How is it reflected in the international balance of payments of Singapore?
-Issuing foreign currency bonds is for the purpose of raising capital, in this case
Singapore X company collects $100 million, which increases Singapore's foreign currency
resources and will credit
2. Suppose the rate of inflation in the U.S.is higher than in Vietnam , this will affect supply,
demand , exchange rate of the VND :
a) Supply of VND will fall , demand of VND will increase , and VND’s value will
increase
b ) Supply of VND will rise , demand of VND will decrease , and VND’s value will decrease
c ) Supply of VND will fall , demand of VND will increase , and VND’s value will decrease
d ) Supply of VND will rise , demand of VND will reduce , and VND’s value will increase
-The inflation rate in the US is higher than in Vietnam, causing the US dollar to
depreciate more than the VND. As a result, the demand for VND will increase, while the
central bank will also reduce the money supply. With the supply curve shifting to the left
and the demand curve shifting to the right, the value of VND increases.
3. The following factors will affect the inflow of direct investment into a country
–All three of these factors negatively affect a country's government, increasing investment
risks, so FDI investors will not invest in countries with wars or political problems.
a) The market participants agree to buy or sell foreign currency in the future at an agreed
price today
b ) The market participants agree ( disagree) to sell foreign currencies in the future at an
agreed price today
c ) The members in the market pay today to receive a certain amount of foreign
currency in the future
d ) The market participants agree to buy and sell a fixed amount of foreign currency at spot
prices which will be announced in the future
-Answer c has the most common characteristics of the foreign market, while the other
answers are related to options. Answer a and d are spot options while answer b is forward
option.
6. United States , the European Community Union and some other countries against China
which maintained a policy of " weak CNY " , because :
a) Regulating the supply and demand of imported and exported goods through
b) Measures to manage buying, selling and intervening in foreign currency supply and
demand;
This is because direct intervention in the exchange rate involves central banks buying
or selling foreign currencies in the foreign exchange market to influence the exchange
rate.
c) The exchange rate is applied in the derivative transactions with a period of less than 3
months;
This is because the spot rate is the exchange rate that is applied for immediate
delivery of the currency. In other words, if you agree to buy or sell a currency at the
spot rate, the transaction will take place immediately.
9. The adjustment of the central exchange rate between VND (VND) against the
US dollar (USD) of the State Bank of Vietnam since early 2020 due to the impact of Covid 19
epidemic may have impact on:
b) Increase net exports and improve Vietnam's current account deficit by 2020;
The depreciation of VND against USD may lead to increased inflation, reduced net
exports, and a larger current account deficit.
10. Assuming that Vietnam continues to peg the exchange rate to the US dollar
(USD), when the trade war between the US and China continues to develop complicatedly,
the exchange rate between VND (VND) and USD (USD) from the second half of 2020 will
have fluctuations:
→ Factor income: the 3rd category of the current account, consists largely of payment
and receipts of interest, dividends, and other income on foreign investment that were
previously made. (p.65)
b. and is a theoretical construct of the factors of production, land, labor, capital, and
entrepreneurial ability.
c. is generally a very minor part of national income accounting, smaller than the statistical
discrepancy.
13. To perform the balance of international payments balance which is in deficit. The
government will implement the following measures:
→ On the one hand, lower interest rates encourage consumer spending; therefore there
will be a rise in spending on imports. On the other hand, lower interest rates should cause
a depreciation in the exchange rate. This makes exports more competitive, and if demand
is relatively elastic, the impact of a lower exchange rate should cause an improvement in
the current account.
→ Incorrect. The impact of investing abroad on the overall balance of payments depends
on the net effect of the current account and capital and financial account. If the increase in
exports and income from foreign investments outweighs the outflow of capital for
investing abroad, it can contribute to a surplus in the balance of payments. Conversely, if
the outflow of capital exceeds the gains from exports and income, it can result in a deficit.
→ Incorrect. Reducing import duty would lead to an increase in imports and hence would
lead to a higher current account deficit)
- Impact on exports: a higher exchange rate increases the prices of goods and
services in terms of foreign currencies, potentially making them less attractive to
foreign buyers. As a result, the quantity of exports may decrease, and the country's
export competitiveness may be reduced.
14. When a country's currency depreciates against the currencies of major trading
partners,
→ America and India are trading partners. The initial exchange rate was, say 50 Rupees
(₹) for 1 Dollar ($). Later the Indian Rupees got depreciated to ₹100 per $1.
When the Indian currency gets depreciated to ₹ 100 for $1, America will be able to
purchase goods from India at a lower price than before, that is, for a product worth ₹200,
America used to pay $4 ($4 * ₹50 per $ = ₹200). However when Indian Rupees gets
depreciated, America will be able to buy the same product at $2 ($2 * ₹100 per $ =
₹200). Therefore America will buy more goods from India than earlier and India’s
exports tend to rise.
A product in America worth $5, India used to pay ₹250 ($5 * ₹50 per $ = ₹250).
However when the Indian Rupees gets depreciated, India has to pay ₹500 ($5 * ₹100 per
$ = ₹500) for the same product. Therefore India will have a tendency to purchase lower
quantities of that product, which is purchased at a lower price earlier for a higher price.
Thus the import falls.
C. both a and b
→ When a country's exchange rate increases relative to another country's, the price of its
goods and services increases. Imports become cheaper. Ultimately, this can decrease that
country's exports and increase imports.
A weaker domestic currency stimulates exports and makes imports more expensive;
conversely, a strong domestic currency hampers exports and makes imports cheaper.
A. the sum of U.S. sales of assets to foreigners and U.S. purchases of foreign assets.
B. the difference between U.S. sales of assets to foreigners and U.S. purchases of
foreign assets.
C. the difference between U.S. sales of manufactured goods to foreigners and U.S.
purchases of foreign products.
→ The capital account balance measures the difference between U.S. sales of assets to
foreigners and U.S. purchases of foreign assets. U.S. sales (or exports) of asset are
recorded as credits, as they result in capital inflow. On the other hand, U.S. purchases
(imports) of foreign assets are recorded as debits, as they lead to capital outflow. (p.66)
D. b and c.
→ A depreciation will begin to improve the trade balance immediately if imports and
exports are responsive to the exchange rate changes. This concept is rooted in economics
and pertains to the elasticity of import and export demand. When a country's currency
depreciates, its exports become cheaper and imports become more expensive. If importers
and exporters are responsive (elastic) to these exchange rate changes, they will adjust
their transactions accordingly. This implies that consumers will switch to cheaper
domestic goods or goods from the depreciating country, thereby reducing imports and
increasing exports. Consequently, this could improve the trade balance immediately.
18. International banks are different from domestic banks in what way (s)?
C. International banks can assist their clients in hedging exchange rate risk
19. Suppose the rate of inflation in the UK is higher than in Vietnam, this will affect the
supply, demand, and exchange rate of the VND:
A. Supply of VND will fall, the demand for VND will increase, and VND's value will
increase.
B. Supply of VND will rise, the demand for VND will decrease, and ND's value will
decrease.
C. Supply of VND will fall, the demand for VND will increase, and VND's value will
decrease.
D. Supply of VND will rise, the demand for VND will decrease, and VND's value will
increase.
A. The market participants agree to buy or sell foreign currency in the future at an
agreed price today.
B. The market participants agree (disagree) to sell foreign currency in the future at an
agreed price today.
C. The members in the market pay today to receive a certain amount of foreign currency
in the future.
D. The market participants agree to buy and sell a fixed amount of foreign currency at
spot prices which will be announced in the future.
This is the definition of a forwards contract in the foreign exchange market. Forwards
contracts are agreements between two parties to buy or sell a certain amount of foreign
currency at a predetermined price on a future date. The price of the foreign currency is
agreed upon today, and the exchange of currency takes place on the future date.
21. During the period of the classical gold standard (1875-1914) there were
E. no exchange rates.
During the classical gold standard period, exchange rates between countries were stable
because the value of each currency was fixed to a certain amount of gold.
A. was not established until 1821 in Great Britain, when notes from the Bank of
England were made fully redeemable for gold.
B. was not established until 1780 in the United States, when notes from the Continental
Army were made fully redeemable for gold
The first full-fledged gold standard was not established until 1821 in Great Britain
when notes from the Bank of England were made fully redeemable for gold.
B. and is a theoretical construct of the factors of production, land, labor, capital, and
entrepreneurial ability.
C. is generally a very minor part of national income accounting, smaller than the
statistical discrepancy.
Factor income often includes returns such as interest and dividends earned on foreign
investments.