International Settlement FIRST REVIEW
Dr. Nguyen Minh Duc
Capital movement
Capital market of country A has its demand curve of D and interest r on the left side
r* r S/S*
Capital market of country B has its demand curve of D* and interest r* on the right side
12%
8%
Suppose A has 30 mil. USD in its capital, B has 10 mil. USD, represented by the relative supply curve S/S*
4%
D* D
Interest rate in A is 4% and
in B is 12%.
Thị trường vốn thế giới
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Dr Nguyen Minh Duc 2009
0 20 30 K 0* K*
Capital movement
r* r S/S*
12%
8%
With mobilized capital flow between 2 countries, the interest rates in the two countries will approach to their equilibrium at 8%
4%
D* D
Thị trường vốn thế giới
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Dr Nguyen Minh Duc 2009
0 20 30 K 0* K*
Question
How the free trade and globalization
affect the Vietnamese capital market?
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Dr Nguyen Minh Duc 2009
Balance of Payment
BOT + TS
BGS + NII
CA + KA = BOP
DI + PI
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Dr Nguyen Minh Duc 2009
Balance of Payment – cont.
BOT (Balance of Trade) + TS (Trade in Services)
= BGS (Balance of Goods and Services)
NII = Net Investment Income CA (current account) = BGS + NII KA (capital account) = DI + PI
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Dr Nguyen Minh Duc 2009
KA: capital account DI: direct investment: PI: porfolio investment
Depreciation and BOT
BOT = Px.Qx – e.P*m.Qm Marshall-Lerner condition If |Ɛex – Ɛim| > 1, BOT increase with the depreciation of domestic currency.
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Dr Nguyen Minh Duc 2009
J-curve
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Dr Nguyen Minh Duc 2009
Question
How difference between fixed and
floating exchange rates?
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Dr Nguyen Minh Duc 2009
