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International Settlement FIRST REVIEW

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 Capital market of country B has its demand curve of D* and interest r* on the right side

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International Settlement FIRST REVIEW

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  1. International Settlement FIRST REVIEW Dr. Nguyen Minh Duc

  2. Capital movement • Capital market of country A has its demand curve of D and interest r on the left side • Capital market of country B has its demand curve of D* and interest r* on the right side • Suppose A has 30 mil. USD in its capital, B has 10 mil. USD, represented by the relative supply curve S/S* • Interest rate in A is 4% and in B is 12%. r* r S/S* 12% 8% 4% D* D 0 0* 20 30 K K* Thị trường vốn thế giới Dr Nguyen Minh Duc 2009

  3. Capital movement • With mobilized capital flow between 2 countries, the interest rates in the two countries will approach to their equilibrium at 8% r* r S/S* 12% 8% 4% D* D 0 0* 20 30 K K* Thị trường vốn thế giới Dr Nguyen Minh Duc 2009

  4. Question • How the free trade and globalization affect the Vietnamese capital market? Dr Nguyen Minh Duc 2009

  5. Balance of Payment BOT + TS BGS + NII CA + KA = BOP DI + PI Dr Nguyen Minh Duc 2009

  6. 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 • KA: capital account • DI: direct investment: • PI: porfolio investment Dr Nguyen Minh Duc 2009

  7. 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. Dr Nguyen Minh Duc 2009

  8. J-curve Dr Nguyen Minh Duc 2009

  9. Question • How difference between fixed and floating exchange rates? Dr Nguyen Minh Duc 2009

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