lOMoARcPSD|32134683
International Finance Exam
International Finance (Đại học Kinh tế Quốc dân)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by H?ng Ánh (
[email protected])
lOMoARcPSD|32134683
International Finance Exam
1.1 . 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?
a) Credited in the balance of long-term capital
b ) Debited in the balance of long-term capital
c ) Credited in the balance of short-term capital
d ) Debited in the balance of unilateral current transfers
-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
1.2 . 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.
1.3 . The following factors will affect the inflow of direct investment into a country
a) The political issues of that country
b ) The political risk
lOMoARcPSD|32134683
c ) War , Civil War
d ) All of the above answers
–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.
1.4 . On the foreign exchange market
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.
1.5 . To perform the balance of international payments balance, which is in deficit, The
government will implement the following measures:
a) Lower interest rates to encourage consumers
b ) Encourage to invest abroad
c ) Implement policies to reduce import duty of goods
d ) Perform adjustment to increase the exchange rate
-Because interventions are not necessary in a floating exchange rate. In a floating
system, an imbalance between supply and demand in the private Forex is relieved by a
change in the exchange rate. Thus there need never be an imbalance in the balance of
payments in a floating system.
lOMoARcPSD|32134683
1.6 . United States , the European Community Union and some other countries against
China which maintained a policy of " weak CNY " , because :
a) Concerned China’s export power
b ) Concerned trade deficits , and unfair competition in exports to China
c ) Both answers are correct
d ) No answer is appropriate
-Devaluing your currency makes your products cheaper abroad. It also makes foreign
products more expensive inside your country. These increase your exports and lower
your imports. This puts the USA and other countries at a disadvantage by increasing
its trade deficit against China.
Part 2 : Theory
1 . Analyze the factors that impact on the trade balance . Current status of the trade
balance in Vietnam .
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
3. Productivity : An increase in domestic productivity will lead to more competition for
domestic goods than for imports, thereby increasing the demand for domestic goods and
reducing the demand for imported goods. Thereby affecting 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.
lOMoARcPSD|32134683
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.
Current trade balance in Vietnam:
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%;
lOMoARcPSD|32134683
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,
lOMoARcPSD|32134683
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.
Part 3 : Exercises
Question 1 : Mr. X has 900,000 Euro with information on the market:
Market 1 : EUR / USD = 1.1255 / 1.1275
Market 2: USD / NOK = 6.7370 / 6.7425
Market 3 : EUR / NOK = 7.7460 / 7.7490
Answer:
Way 1:
Sell EUR/USD (market 1) -> Sell USD/NOK (market 2) ->Sell NOK/EUR (market 3)
Way 2:
Sell EUR/NOK (market 3) -> Sell NOK/USD (market 2) ->Sell USD/EUR (market 1)
Way 1:
Sell EUR/USD with Sbid = 1.1255
The amount of USD bought is: 900,000*1.1255 = 1,012,950 (USD)
Sell USD/NOK with Sbid = 6.7370
The amount of NOK bought is: 1,012,950*6.7370 = 6,824,244.15 (NOK)
1
Sell NOK/EUR with Sbid = = 0.1290
7.7490
The amount of EUR bought is: 6,824,244.15*0.1290 = 880,327.4954(EUR)
The loss from Arbitrages is: 900,000 - 880,327.4954 = 19,672.5046 (EUR)
Don’t do Arbitrages
Way 2:
Sell EUR/NOK with Sbid = 7.7460
The amount of NOK is bought: 900,000*7.7460 = 6,971,400 (NOK)
lOMoARcPSD|32134683
1
Sell NOK/USD with Sbid = = 0.1483
6.7425
The amount of USD is bought: 6,971,400*0.1483= 1,033,858.62 (USD)
1
Sell USD/EUR with SbidUSD/EUR= = 0.8869
1.1275
The amount of EUR is bought :1,033,858.62 *0.8869=916,929.2101 (EUR)
The profit from Arbitrages is: 916,929.2101 – 900,000 = 16,929.2101 (EUR)
Do Arbitrages
Question 2 : On 1/12/2011 , Industrial and Commercial Bank of Vietnam needs
1,800,000 GBP within 3 months , while it is in excess of the amount of CAD . Do Swap
for the Industrial and Commercial Bank Swap with information on market :
1 ) The spot exchange rate :
GBP / USD = 1.7395 / 15 USD / CAD = 1.1255 / 95
2 ) The forward interest rate of 3-month currencies :
GBP : 9.0625-9.125 % / year
CAD : 6 - 6.5 % / year
Answer
Buy(Spot): 1,800,000 GBP/CAD
Sell(Forward): 1,800,000 GBP/CAD
GBP∗360 9.0625∗360
T bid GBP∈Vietnam=T bid = =8.9383
365 365
GBP∗360 9.125∗360
T ask GBP∈Vietnam=T bid = =9
365 365
GBP in Vietnam: 8.9383-9%/year
Step 1. Buy 1,800,000 GBP/CAD with Saverage GBP /CAD
GBP/USD = 1.7395/1.7415
USD/CAD = 1.1255/1.1295
SbidGBP/CAD = Sbid GBP/USD * Sbid USD/CAD = 1.7395*1.1255=1.9578
lOMoARcPSD|32134683
SaskGBP/CAD = Sask GBP /USD * Sask USD /CAD =1.7415*1.1295=1.9670
GBP/CAD=1.9578/1.9670
S bid GBP /CAD+ S ask GBP /CAD 1.9578+1.9670
Saverage GBP /CAD= = =1.9624
2 2
The amount of CAD is paid : 1,800,000*1.9624=3,532,320 (CAD)
Step 2. Sell 1,800,000 GBP/CAD with Swap
S average∗( T CADbid −T GBPask )∗90
Sswap =S average +
36,000+T GBPask∗90
1.9624∗( 6−9 )∗90
Sswap =1.9624+
36000+ 9∗90
Sswap =1.9480
The amount of CAD is received: 1,800,000*1.9480=3,506,400 (CAD)
