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ASS 1 (Vietnamese)
ASS 1 (Vietnamese)
Overall, the positive or negative influence of Balance of Payments does not depend
entirely on deficit or surplus, but also on the direct / indirect capital structure, on
identifying potential risks and bringing practical policies out for the economy to
make efficient use of available capital and to attract foreign investment.
10.
a. Inflation
Inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. When the price level rises, each unit of currency
buys fewer goods and services. Similarly, it causes the value of the domestic
currency to fall. Therefore, the civilains will have to pay more money to buy goods
and services than before.
The drop in inflation rates of Vietnam and China has led to the surplus on their
Current Account.
When consumers can purchase more goods and services at the same level than
before, they will prefer domestic consumption. Hence, it lessens the demand for
foreign goods and brings about the drop off for imports. Additionally, because the
domestic product prices decline so that the exports to the international market at
cheaper prices will increase the competitiveness. As a result, the exports increase.
Because the volume of imports (cash outflow) is more lesser than exports (cash
inflow) so that the Current Account will achieve surplus.
The inflation rate of the United States experienced an upward trend over the
period. Consequently, its Current Account has achieved deficit.
On the contrary, when consumers have to pay more money to purchase domestic
goods and services, they will prefer imported goods because of good quality,
safety. Moreover, domestically upward prices also bring down the disparity with
foreign prices. For those reasons, that country will import more to meet the needs
of consumers and lead to the rise of imports. Besides, because the domestic
product prices increase so that people abroad have to pay more for the goods which
they were buying from your country. So your exports will decrease because people
will try to look for alternatives for the same goods which they were buying from
you. Because the volume of imports (cash outflow) is larger than exports (cash
inflow) so that it will cause a deficit in Current Account.
b. GDP
There is a formula that shows the correlation between GDP and the Current
Account: GDP = C + I + G + (Ex - Im)
Ex: Export
Im: Import
Under the condition that other factors remain unchanged, when a country spends
less than the return, its Current Account will achieve surplus and here comes the
deficit if the spending / investment exceeds the return.
With USA: Particularly, as people's incomes increase, the demand for goods and
services also increases along with prices, so that people tend to consume more
imported goods. As a result, the supply of imported goods will increase and exports
will decrease due to higher prices than before. Consequently, it will lead to a
deficit in the Current Account, similar to the case of inflation. In short, when GDP
increases, the volume of imports larger than exports will make the Current Account
deficit.
With VN & China: In contrast, countries with declining GDP, more exports than
imports, make the Current Account surplus. Specifically, people with low demand
for goods which is equivalent to whether their incomes are merely enough to meet
normal consumption or not enough for them to spend more to cover their needs.
Therefore, domestic product prices are not on the upward trend and demand for
foreign goods is not high-pitched. Furthermore, the price of exported goods
remains unchanged or becomes cheaper will attract international exports so that its
volume may be higher than the volume of imports. As a result, it will achieve
surplus.
c. Goverment Control
There is a formula that shows the correlation between national policies and the
Current Account: (Sp - I) + (T - G) = CA
In order to improve the shortage, the government can carry out some policies to
reduce the amount of investment such as raising interest rates on investment loans
or increasing the required reserve to encourage the businesses to invest less.
Moreover, we can reduce government expenditures by reducing debt, fixed annual
costs or increasing export taxes ... With such an appropriate adjustment, the
Current Account will achieve surplus.
8. China hold a Foreign-exchange reserves that goes far beyond the international
routine. It is also the world's largest in term of scale currently. This phenomenon
occurs because:
China's reserves are mainly from Current Account surpluses, which are
highly stable. China also has reserves from the Capital and Financial
Accounts as China continues its double surplus for many years.
7.
Phase 2 (2015-2016): The USD / CNY exchange rate fell sharply which
showed the rise in value of their domestic currency and the Balance of Trade (the
volume of imports and exports of goods and services) was declined.
Vietnam
As we can see from the exchange rate chart of Vietnam which is quoted in
US dollars shows that Vietnam is devaluing its currency.
The volume of exports increased each year (except for 2015) proving that
the value of goods and services was not so expensive and easy to export.
Moreover, its competitiveness on the international market also soared steadily
compared to other countries while the domestic currency was undervalued.
Nevertheless, imports also tended to increase at a faster pace than exports and
formed the narrow in the gap between imports and exports. The devaluation of
Vietnam’s currency was rather slow and less volatile than China. The cause of this
phenomenon is mainly due to the impact of the yuan devaluation which brings
about the fall of the domestic currency of Vietnam because China is an important
commercial partner of Vietnam in the international market.