Sunday, March 31, 2019

Relationship Between Balance Of Payments And Exchange Rate Finance Essay

Relationship Between ratio Of Payments And Exchange Rate pay EssayThe accedence of developing countries such as China, Thailand, Vietnamto the inter peopleal trade pause them the prosperous and economic growth however the countries have faced umpteen issues in managing their macro-economy to sustain the economic growth and development. Especi in ally, in Vietnam, the regime ordinarily has serious difficulties in managing and operating the economic with the deficit in the equilibrize of Payments, the depreciation house servant currency and retraining the local largeness.The agreement of salary is mavin of the most considerations of the governments when they formulate the national trade, fiscal and m adepttary policies, so it has the significant important role in governments policy decision-making. It too has an critical part to organizations (i.e. banks, companies, nongovernment organizations) and individuals that ar havely or indirectly involved in international trade and finance (Dominick Salvatore, 2011). And the parallelism of Payments is a significant index itemize of the pressure on the veer score of a country (David K. Eitman, Arthur I. Stonehill Michael H. Moeffett, 2010). In the scope of Vietnam, the unornamented in the sleep of Payments encourages the governments allow the comfort of the national currency to emergence. On the otherwise hand, the significant deficit in Balance of Payments force the government to devalue the price of VND (David K. Eitman, Arthur I. Stonehill Michael H. Moeffett, 2010).Next, the theories of central govern mark that related to the s heartying and the balance of payments ar Purchasing Power comparison Approaches and Balance of Payments Approaches celeb grazeively. According to Purchasing Power Parity border ones, the determination of the cor doence of alter tempo in long term is the ratio of domestic prices relative to opposed prices (David K. Eitman, Arthur I. Stonehill Michael H. Moeffett, 2010). And along with Balance of payments approaches, the swop rate reflects the executions in the current and financial account statements of the balance of payments (David K. Eitman, Arthur I. Stonehill Michael H. Moeffett, 2010). The supercede rate movements also produce the essay for firms, because they result in external exchange motion picture, i.e. transaction risk, translation exposure and operating or economic exposure. The transaction risk partakes to the exposure of the firms contractual transactions in foreign currencies (Jeff Madura, 2008). The translation exposure refers to the exposure when the firms translate or consoli look their subsidiaries financial statements to the currency of the upraise company (Jeff Madura, 2008). The economic exposure refers to the exposure of a firms present values, which ar affected from the changes in operating cash flows, which are effected movements of exchange rate (David K. Eitman, Arthur I. Stonehill Michael H. Moeffett, 2010). Thus, the transaction exposure is the subfield of the economic exposure (Jeff Madura, 2008). In the setting of Vietnam, USD is considered as a tool to invest thus when the value of USD plus with respect to the value of VND, people and investor leave aloneing exchange from VND to USD. There are two reasons behind that fact first, they want to invest in USD second, they alarmed of the lump and the devaluation in VND.Therefore, the movements of exchange rate forget impact the fanfare in Vietnam. And the flash impacts everyone directly or indirectly. It impacts on savers and investors, people with unflinching incomes (i.e. pension payment) for example, if the inflation rate goes up higher than the return on savings or investment, the received specie will be outlay less than it was when they deposited. However, the increase in the inflation may impact positively the people who owe money they may generally get social welfare from inflation if the value of the money they repay is less than that of the amount of their loans. On the other hand, the inflation may affects shunly the people who lend money, if the value of the money they lend to other people is worth than the value of money the borrowers repay them. To be noted, the inflation will influences business the inflation will increase the costs, so the companies have to try to increase their incomes higher than the increase in inflation in beau monde to compensate the increase in the costs (Gerson Antell and Walter Harris, 2005). The inflation also impacts the international trade of a country. In the circumstances of other things equal, if the inflation rate increases relative to that of the trade-partner countries, its current account will decrease. Because the people in that country will purchase more imports from foreign countries due to the higher local inflation, while the exports of that country will decline (Jeff Madura, 2008). That will impact the demand for and suppl y of the currencies of that currencies (Jeff Madura, 2008)Next, I would comparable to mention briefly somewhat the three things the query is going to get hold of.First, tn principle, the balance of payments is a summary statement which embraces all the transactions of the residents of a nation with the residents of all other nations, and they are recorded during a period of season. (Dominick Salvatore, 2011434).Thus, it summarizes all transaction into some categories and only the net balance of distributively one is included and has time dimension. The transactions in the balance of payments are international, and are classified as credits or debits. The credit transactions refer to the receipts of payments from foreigners and they are noted with a positive sign. On the other hand, the debit transactions refer to the payments to foreigners and they are noted with a negative sign. (Dominick Salvatore, 2011).Next, an exchange rate is the price of one currency expressed in terms of another (Glen Arnold, 2008965). There are two ways of credit entry for exchange rate (i.e. direct quotation and indirect quotation). Within the direct quotation, the exchange rate between a domestic currency and foreign one is equal to the number of the domestic currency to purchase one unit of a foreign currency (Dominick Salvatore, 2011). The indirect quotation is valetudinarianism versa. Next, the movements of the exchange rate refer to the terms depreciation and grip. The depreciation is increases in the price of the foreign currency with respect to the domestic currency and the taste sensation refers to decreases in the price of the foreign currency with respect to the domestic currency page (Dominick Salvatore, 2011). Thus, the depreciation in this study refers to the increases of the price of USD with respect to VND, and the appreciation refers to decreases in the price of USD with respect to VND. In Vietnam, USD is the most public foreign currency and it has an sign ificant important role in the economy in Vietnam. Moreover, the people in Vietnam invest so much(prenominal) in USD in order to earn interest or avoid the risk of inflation of VND. Therefore, the exchange rate that the study will collect and analyze is the exchange rate between USD and VND USDVND. The rate is quoted directly, that agency the rate reflect how much domestic currency (i.e. VND) for one unit of foreign currency (i.e. USD)Next, I would like to mention about the inflation, the method to saloon the inflation in this study and the inflation in Vietnam. According to Romer Inflation is an increase in the average price of goods and services in terms of money (2006 497). The inflation is measured by many methods such as consumer price index, manufacturer price index, gross domestic product inflation indices, etc. The CPI and PPI are fixed-weight measures that means the same basket of goods and services is analyzed each month. Meanwhile, the GDP inflation indices are a vari able-weight measure within this method, the basket of goods and services universe assessed depended on what was produced during a particular quarter (Evelina M. Tainer, 2006). Among those methods, CPI is the most popular method to measure inflation in the world because it has many advantages with respect to other methods. For example, the GDP inflation indices cover more items than CPI, provided the GDP inflation indices are outletd only quarterly meanwhile the monthly release of the CPI champion people observe the inflation closely and constantly. Moreover, the PPI full embraces the price changes in wholesales business it does not involve services which is the fastest-growing surgical incision in the world (Bernard Baumohl, 2005). Therefore, CPI is more relevant to the cost of alert and the cost of doing business. Consumer price index refers how much consumers pay for goods and services, that influences individual and corporeal investment, the cost of business and the qualit y of life (Bernard Baumohl, 2005). And CPI is an index number which expresses percentage changes from base year.Structure of literature followThe literature review of this study will follow the formatThe Balance of PaymentThe descriptionThe constituents of the Balance of Payments.When the Balance of Payments is surplus and deficit. Their impact on inflation and exchange rateAn overview about the Balance of Payments in Vietnam and its challengesThe InflationThe definitionHow to measure the inflation The method applied in the context of VietnamThe influence of the inflation on the exchange rate and the Balance of PaymentsThe overview about the inflation in Vietnam and its problemsThe exchange rateThe definitionWhy the author choose the exchange rate between VND and USD to study.The impact of the movements of exchange rate on the Balance of Payments and the deficitThe overview about the Vietnamese currency regime and the exchange rate between VND and USD in VietnamThe affinityship or reciprocal among The exchange rate, the Balance of Payments and the Inflation in the context of developing countries that has the conditions and situations like VietnamThe issue and challenges that Vietnam is face up in the relationships among the exchange rate (USD/VND), the Balance of Payments and the InflationSignificance of the studyThis study will produce the reader an overview and help them understand more about the relationship or reciprocal among the Balance of Payments, the movements of exchange rate and the Inflation in Vietnam. So, the study will produce significant benefitsThe government in Vietnam will have one more useful question paper in the governance of the macro-economy, especially about the control and administer the Inflation, the state of Balance of Payments when the exchange rate moves.The benefit of the study is percentage the firms in Vietnam can understand and forecast the inflation and the exchange rate (USD/VND) in Vietnam better. That will help th em hedge their incomes and payments in order to quash the risks. As we know, Inflation causes instabilities and distorts economic decisions however only unexpected inflation place causes problems, not anticipated inflation rates. (Evelina M. Tainer, 2006)3. Research questions and objectives3.1 Research questionsThe study will try to answer the following questions in the context of Vietnam1. How the exchange rate moves when the state of Balance of Payment is deficit or surplus?2. How the inflation responds to the movements of exchange rate between USD-VND?The research will not only analyze the movements of the three factors in the past form 1995 to 2010 but also try to produce the main reasons and causes behind the movements. Those will help the readers can have a latterly and big view about the relationships between the Balance of Payments the exchange rate (USD-VND) and between the exchange rate (USD-VND) The inflation.3.2 Research objectivesThere are two main objectives1. Fin ding familiar movements of the exchange rate when the Balance of Payments deficit and surplus and the common respond of the inflation to the movements of the exchange rate.2. Clarifying the main reasons and causes in those facts.In order to achieve the objective one, the author will collect date from 1995 to 2010 because the data will be examined by employing SPSS or Microsoft Office jumpNext, the second objectives will require more comprehensive academic denotation and supplementary researches or from some specialists and officers in the government to clarify the deep reasons behind the facts.4. Research methodology Research design4.1 research methodologyThis part will involve in the methodology or function to find out the relationship between the three factors in the context of Vietnam. The study will the method involved in secondary data collection, and there may be interviews with some specialists then the depth psychology will be used to find the conclusions.4.2 Resea rch designThe author proposes the questions and scheme then the author collected quantitative data and information from secondary resources to analyze and find the answers. The questions and hypothesis come first and guide the touch of gathering data.According to what I mention above, I can arrest that the epistemology of this research is positivism. The data of this research is analyzed to test the hypotheses. The author is nonsymbiotic from what are being researched.4.3 Data collectionThe research method of stack away data in this study is collecting data and information from secondary data sources.The author will collect data for exchange rates between VND and USD, the state of Balance of Payments and the Inflation in Vietnam, the balance of payments in Vietnam and the inflation in Vietnam from 1995 to 2010.The research will collect the date from 1995, because that is the time U.S abolished completely the trade embargo to Vietnam. That influenced international trade in Vietn am and created the relation between the balance of Payments and the exchange rate between USD-VND as well as the impact of the exchange rate on the inflation in Vietnam5. Time scaleThis study is divided into four stages and the duration of each stage in particular and that of the study in general are predicted as followsStagesWorkingDuration1Literature review4 weeks2Collecting Data6 weeks3Data analysis and presentation4 weeks4Conclusion and recommendation3 weeksIt is pliant to change the duration of study subject due to unexpected problems occurring during the research process6. ResourcesThe research process will be involved in the following resourcesA laptop computer to do the study mesh access to collect data and informationOnline library access to approach academic papers related to the study.The assistance from governments staff to access the date of exchange rates, the inflation index and the state of Balance of payments.Particular, the researcher call for the instructors gui dance of how to use software to analyze data such as Microsoft Office Excel or SPSS, or others.

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