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TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

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BÀI TẬP NHÓM MÔN: KINH TẾ QUỐC TẾ 2

ĐỀ TÀI: Foreign Exchange Market and Vietnam

Nhóm: 2

Lớp: Kinh tế quốc tế CLC 63B

GVHD: Ngô Thị Tuyết Mai

HÀ NỘI, NĂM 2023

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 Contents
I. What is Foreign Exchange Market..............................2
1. Definition of Foreign Exchange Market......................2
2. Functions................................................................................2
3. Types.......................................................................................3
4. Pros and Cons.......................................................................3
5. Participants in the FOREX...............................................5
II. The Foreign Exchange Market in Vietnam............5
1. The operating mechanism of the Foreign Exchange
Market in Vietnam...................................................................8
2. The role of central banks in the Foreign Exchange
Market..........................................................................................9
3. State bank of Vietnam intervenes in the Foreign
Exchange Market......................................................................9

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I. What is Foreign Exchange Market

1. Definition of Foreign Exchange Market

- The Foreign Exchange Market, or forex market for short, is where

currencies of different countries are bought and sold. It is a decentralized
market where participants trade currencies with each other, and its
purpose is to facilitate international trade and investment. The prices of
currencies are constantly changing based on supply and demand,
economic factors, political events, and other factors. People and
businesses use the forex market to exchange one currency for another, to
invest in other countries, or to hedge against currency risks.

2. Functions

- Currency conversion: The Forex market allows users to convert one

currency to another to facilitate commercial transactions, travel, or
financial investments.
- Currency valuation: The Forex market is the place to determine the
value of currencies around the world. Traders will be interested in the
relative value of currencies and make trading decisions based on the
fluctuations in price.
- Currency supply and demand: The Forex market is also the place
where traders meet each other's currency supply and demand needs.
Sellers want to sell their currencies at higher prices, and buyers want to
buy currencies at lower prices. The trade between the two parties will
change the value of that currency.
- Financial investment: The Forex market is a place where financial
investors can participate in trading currency pairs with the hope of

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 making a profit. Investors can buy and sell currency pairs depending on
market prices and trends.
- Risk management: The Forex market also provides financial instruments
for traders to manage risks such as futures contracts or currency options.
These tools help minimize finanial risks for investors."

3. Types

- Spot Forex Market: The spot market is the immediate exchange of

currencies at the current exchange. On the spot. This makes up a large
portion of the total forex market and involves buyers and sellers from
across the entire spectrum of the financial sector, as well as those
individuals exchanging currencies.
- Forward Forex Market: The forward market involves an agreement
between the buyer and seller to exchange currencies at an agreed-upon
price at a set date in the future. No exchange of actual currencies takes
place, just the value. The forward market is often used for hedging.
- Futures Forex Market: The futures market is similar to the forward
market, in that there is an agreed price at an agreed date. The primary
difference is that the futures market is regulated and happens on an
exchange. This removes the risk found in other markets. Futures are also
used for hedging.

4. Pros and Cons

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PROS CONS

+ There are fewer rules than in other markets, + Though the market being unregulated brings
which means investors aren't held to the strict advantages, it also creates risks, as there is no
standards or regulations found in other markets. significant oversight that can ensure risk-free
transactions.
+ There are no clearing houses and no central
bodies that oversee the Forex market. + Leverage can help magnify profits but can
also lead to high losses. As there are no set
+ Most investors won't have to pay the
limits on leverage, investors stand to lose a
traditional fees or commissions that would be
tremendous amount of money if their trades
applied on another market.
move in the wrong direction.
+ Because the market is open 24 hours a day,
+ Unlike stocks that can also provide returns
which means there's no cut-off time to be able
through dividends and bonds through interest
to participate in the market.
payments, FX transactions solely rely on
+ If you're worried about risk and reward, you appreciation, meaning they have less residual
can get in and out whenever you want, and you returns than some other assets.
can buy as much currency as you can afford
+ Lack of transparency in the FX market can
based on your account balance and your
harm a trader as they do not have full control
broker's rules for leverage.
over how their trades are filled, may not get the
best price, and may have a limited view of
information, such as quotes.

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 5. Participants in the FOREX

- Central banks: These are government organizations responsible for

regulating monetary policy and often intervene in the Foreign Exchange
Market to keep currency values stable. The policies of central banks can
affect the exchange rate and profits of other traders in the Foreign
Exchange Market.
- Commercial banks: These are financial institutions that deal with
individual and corporate clients. Commercial banks may participate in the
Foreign Exchange Market to protect their clients from exchange rate
risks.
- Investment funds: These are asset management organizations that invest
in diverse investment portfolios, including the Foreign Exchange Market.
Investment funds often make investment decisions based on economic
and political factors.
- Individual traders: These are individual investors who participate in the
Foreign Exchange Market to make profits. Individual traders often use
different trading methods to predict and select currency pairs.
- Multinational corporations: These are companies that operate
businesses in multiple countries and often have to carry out currency
transactions such as payments and income from their activities.
Multinational corporations often participate in the Foreign Exchange
Market to protect their transactions from exchange rate risks.

II. The Foreign Exchange Market in Vietnam

The Foreign Exchange Market in Vietnam involves the trading of VND

and USD currency pairs through commercial banks and authorized dealers.

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Exchange rates are determined by market supply and demand and can be
influenced by various factors. The State Bank of Vietnam regulates exchange
rates and intervenes when necessary to maintain stability. The market facilitates
international trade and investment and contributes to economic growth.

The exchange rates of foreign currencies at Vietnam Joint Stock

Commercial Bank for Foreign Trade of Vietnam on March 24th, 2023:

Currency Currency Buying Buying Selling

code Name Rates Rates Rates
(Cash) (Transfer)

AUD AUSTRALI 15,294.5 15,449.01 15,946.65

AN 2
DOLLAR

CAD CANADIAN 16,706.6 16,875.35 17,418.93

DOLLAR 0

CHF SWISS 24,998.8 25,251.34 26,064.73

FRANC 3

CNY YUAN 3,376.67 3,410.78 3,521.18

RENMINBI

DKK DANISH - 3,355.39 3,484.32

KRONE

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EUR EURO 24,807.4 25,058.07 26,196.51
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GBP POUND 28,126.6 28,410.72 29,325.87

STERLING 1

HKD HONGKON 2,918.84 2,948.32 3,043.29

G DOLLAR

INR INDIAN - 285.06 296.5

RUPEE

JPY YEN 174.95 176.72 185.22

KRW KOREAN 15.79 17.54 19.24

WON

KWD KUWAITI - 76,611.48 79,684.38

DINAR

MYR MALAYSIA - 5,261.86 5,377.30

N RINGGIT

NOK NORWEGIA - 2,213.96 2,308.25

N KRONER

RUB RUSSIAN - 294.38 325.92

RUBLE

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SAR SAUDI - 6,241.01 6,491.34
RIAL

SEK SWEDISH - 2,227.67 2,322.54

KRONA

SGD SINGAPOR 17,255.1 17,429.48 17,990.91

E DOLLAR 8

THB THAILAND 609.54 677.27 703.3

BAHT

USD US 23,310.0 23,340.00 23,680.00

DOLLAR 0

1. The operating mechanism of the Foreign Exchange Market in

Vietnam

- The operating mechanism of the Foreign Exchange Market in Vietnam

includes the agencies and policies regulated by the State Bank of
Vietnam.
- The State Bank of Vietnam is the official regulatory agency of the
Foreign Exchange Market in Vietnam. Its main functions include
managing and supervising exchange rates, providing information, and
making decisions on monetary policy.
- In addition, commercial banks and other financial institutions also
participate in the Foreign Exchange Market in Vietnam. However, their

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 activities must comply with the regulations and supervision of the State
Bank.
- To ensure transparency and honesty in transactions in the Foreign
Exchange Market, the State Bank of Vietnam requires financial
institutions to register and obtain licenses to operate. Furthermore, the
State Bank also monitors and updates regulations on foreign exchange
transactions in Vietnam.
- In recent years, Vietnam has also expanded the scope of the Foreign
Exchange Market and allowed foreign investors to participate in this
market. However, regulations and limitations are still in place to protect
the interests of domestic investors."

2. The role of central banks in the Foreign Exchange Market

- Exchange rate adjustments: Central banks can intervene in the Foreign

Exchange Market to buy or sell a country's currency and adjust the
exchange rate. This helps to control inflation, promote economic growth,
and maintain the stability of the currency.
- Protection of currency supply: Central banks can also buy or sell
different currencies to protect the currency supply of a country. If a
currency is losing value too quickly, the central bank can intervene to
prevent excessive devaluation of the currency.
- Financial stability maintenance: Central banks can use monetary policy
to maintain financial stability and prevent risks in the Foreign Exchange
Market. By minimizing exchange rate fluctuations, central banks help to
reduce risks for businesses and investors in international transactions.

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3. State bank of Vietnam intervenes in the Foreign Exchange Market

In order to manage the value of its domestic currency (VND)

against other foreign currencies, the State bank of Vietnam will intervene
in the Forex. The key reasons are:

- Keeping the Foreign Exchange Rate at a stable level

When SBV expects an up-coming fluctuation in the Foreign

Exchange Market, they will adjust the Exchange Rate to keep it stay in
line, which will encourage the growth in national economics by attracting
more FDI and boosting International trade.

 Example: According to experts, monitoring and stabilizing the

exchange rate is an urgent goal for policy makers in Vietnam. In
response to the long-standing tension in the exchange rate, the State
Bank of Vietnam (SBV) had sold a substantial amount of USD from
its foreign exchange reserves to stabilize the domestic rate.

The report from VinaCapital and ACBS estimates that the SBV sold
an estimated US$21 billion in early 2022 to reduce Vietnam's foreign
exchange reserves to US$89-90 billion, which is equivalent to an import
value of about 3 months.

As estimated by data company WiGroup, Vietnam's foreign exchange

reserves in the first nine months of this year have fallen from $ 110
billion to $ 87 billion, reaching the safe threshold.

However, the anti-inflation raise in the US has not come to an end.

Therefore, the USD/VND exchange rate is not full.

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 So far, the SBV has consistently emphasized, in the context of
unfavorable market conditions, and significant pressure, that the size of
the foreign exchange reserves has strongly strengthened in the previous
period, and that it has and will continue to sell its foreign currency to
stabilize the market.

Accordingly, SBV will increase the frequency of foreign exchange

intervention to be ready to supplement the supply of foreign currencies to
the market more frequently, facilitating the credit institution system to
fully and promptly meet the legitimate foreign currency needs of
organizations and individuals, including foreign currencies, to import
essential commodities for domestic production and business and export.
In doing so, helping to stabilize the market and support economic
recovery.

- Controlling the inflation

If inflation happened and caused an increase in the exchange rate of

Vietnam Dong, SBV will intervene to avoid facing inflationary pressures
such as lowering in the import price or rising in demand for foreign goods
and services.

 Example: Vietnam has successfully controlled inflation in 2022 in the

face of unpredictable fluctuations in the world economy due to the
following key causes:

First, the production and supply of Vietnamese food and foodstuff are
guaranteed. In recent times, the world has faced the risk of food
insecurity, especially when the conflict between Russia and Ukraine
occurred. However, domestic supply of this group was abundant, not only
meeting the needs of the people but also contributing to export

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promotion, so food prices were quite stable. While food represents a high
share (almost 25%) of Vietnam's total household consumption
expenditure, the impact on the CPI is strong. In it, the average pork price
in 2022 fell by 10.68%, helped curb the food group's appreciation rate
and hit the overall CPI by 0.36 percentage points.

Second, some State managed goods have been keeping prices stable
for 2022. Specifically, in the school year 2021-2022, many localities
waived or reduced tuition fees to share difficulties with residents during
the pandemic. If the 2022-2023 school year roadmap is in line with the
Government's Decree No. 81/2021/ND-CP stipulating fee collection and
management mechanism for educational institutions under the national
education system and policies on tuition fee exemption and reduction,
education fee support, education service price in the field of education
and training, however, December 20, 20 22, the Government passed
Resolution No. 165/NQ-CP on school fees for public education and
training institutions for the 2022-2023 school year, which requires
localities to maintain the collection of school fees for the 2022-2023
school year such as the 2021-2022 school year to continue providing
support for people. For the cost of healthcare, if the cost of healthcare
services is carried out in accordance with the schedule, in 2021, the total
cost shall be completed in accordance with the price law. But to share the
difficulties with them, this amendment has not yet been done. In addition,
electricity prices on EVN have not increased for nearly four years, despite
the entry costs of the sector, such as gasoline prices, and coal prices,
which have risen extremely high.

Third, because of the close, timely and drastic administration of

Governments amid world commodity prices. In recent years, the
government has launched a series of timely solutions on tax, supply, price

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 support ... This has helped the business of the enterprise and stabilize the
life of people, reduce significant pressure on the price ground. In
particular, for petroleum products, in the year prices rose rapidly as the
world economy recovered along with armed conflict between Russia and
Ukraine made supply scarce, which in turn affected Vietnam. The 2022
domestic gasoline price was adjusted 34 times causing the average
gasoline price of 2022 to increase by 28% compared to 2021. However,
compared to the world, this increase is still much lower (Brent oil per
year in 2022 increased by about 40% compared to the previous year)
because in the past time, the stabilization fund was used efficiently and
flexibly, the supply shortage was overcome in time, in addition to the
reduction of taxes in petroleum has helped curb the rate of increase and
support for economic recovery

- Maintaining the competitiveness

Along with the increasing demand for foreign goods and services,
high inflation will also make Vietnamese exports become relatively
higher, causing an decrease in demand for Vietnamese goods in the
global market. SBV can intervene in the exchange rate to make goods
from Vietnam more appealing to foreign importers.

 Examples:

Provide export incentives: The Vietnamese government has

implemented various export incentives to encourage domestic firms to
export more. For example, they may provide tax incentives, subsidies, or
low-interest loans to exporters. These incentives can help to offset the
costs of exporting and improve the competitiveness of Vietnamese
products in foreign markets.

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 Promote trade agreements: The Vietnamese government has signed
several trade agreements with other countries and regions, such as the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). These
agreements reduce tariffs and other trade barriers, making Vietnamese
exports more competitive in those markets.

Invest in infrastructure and technology: The Vietnamese government

has invested heavily in infrastructure and technology to improve the
competitiveness of its exports. For example, they have developed modern
ports, highways, and airports to facilitate the movement of goods and
people. They have also invested in research and development to improve
the quality and efficiency of Vietnamese products.

- Building the foreign exchange reserves

Foreign exchange reserves are important for any country’s economics,

including Vietnam. By intervening in the exchange rate, the government
will build up this reserve to pay for foreign debts and import finance.

 Example:

In 2022, the international financial market was complicated, the

exchange rate and domestic foreign currency market were under great
pressure, the balance of supply and demand for foreign currencies was
difficult. With the size of foreign exchange reserves has been
accumulated significantly in the previous periods, when the domestic
market has fluctuated, the SBV has prepared resources to meet the
demand of foreign currencies to intervene, ensure liquidity for the market,
thereby contributing to macroeconomic stability and curb inflation. At the
same time, the SBV made timely adjustments in the structure, standards

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and quotas on state foreign exchange reserves to conform to domestic and
international financial market developments, while ensuring compliance
with prudential, liquidity, and profitability principles of managing state
foreign exchange reserves.

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