The relationship between korean won (KWR) and vietnam dong (VND) is quoted using the exchange rate KWRVND

In this research, correlation between five factors, including the inflation, the GDP, the BOT, the FDI, and the GNI, to the change in exchange rate between Viet Nam and Korea is tested..

INTERNATIONAL UNIVERSITY

INTERNATIONAL FINANCE

GROUP PROJECT

Saturday Class Instructor: PhD Trinh Quoc Dat

_

Submitted date: December 12th, 2020

Group members:

Nguyễn Thanh Nga – BAFNIU18195 Mai Khánh Huy – BAFNIU18232 Hoàng Thụy Khanh – BAFNIU19014

TABLE OF CONTENTS

III DATAANALYSIS AND RESULTS

IV EXCHANGE RATE ESTIMATION FOR

2022 V CONCLUSION

VI REFERENCES

I INTRODUCTION:

The exchange rate is the ratio of one's currency's worth to that of another nation or economic zone's currency It is critical in determining the economic health of a country and its viability for commercial development Furthermore, exchange rate volatility reflects the proclivity of foreign currency to rise or fall in value, affecting the profitability

of international transactions As a result, various economic elements all around the world are paying attention to it Furthermore, several factors linked to the two nations' trade connection have an impact on exchange rate volatility

In this research, correlation between five factors, including the inflation, the GDP, the BOT, the FDI, and the GNI, to the change in exchange rate between Viet Nam and Korea is tested The relationship between Korean Won (KWR) and Vietnam Dong (VND)

is quoted using the exchange rate KWR/VND, which express the KRW currency’s value

in terms of VND’s

II METHODOLOGY:

1 Data collection:

Our sample extends the years 2005 to 2020, and is separated into non-overlapping 15-year intervals, with all variables gathered on an annual basis We collected the historical KRW/VND exchange rates, inflation rates of Korea and Viet Nam, GDP, GNI per capital of each country, net FDI of the two countries In addition,

we collected the date for the import and exports transactions occurred only between Viet Nam and Korea Most of the data was collected mostly from World Bank and Trading Economics sources

2 Variable interpretation and Data Process :

One dependent variable and seven independent variables were used to analyze the influence of various significant macroeconomic factors on the change in the exchange rate between Vietnam and South Korea Dependent variable is the change in the yearly exchange rates, and the independent variables include Delta Inflation, Delta GDP, GNI of Viet Nam, GNI of Korea, FDI of Viet Nam, FDI of Korea, and the BOT between Viet Nam and Korea

1 The change in the exchange rates between Vietnam and South Korea, where the local currency is the KRW.

This is the study's dependent variable The currency rate is presented as a straight quote, its differential will be calculated by this formula:

Where : the % change in the exchange rate

En : the exchange rate in year n

En-1: the exchange rate in the year before year n

2 The change in GDP delta calculated in Vietnam and South Korea (%) :

The Gross Domestic products is expected to affect the strength or weakness of a currency

As the GDP of a country rise, the value of that country’s currency also rises, and vice versa In this research, the net value of the Korean and Vietnamese GDP is conducted, by subtracting the value of the Vietnamese GDP from the Korean GDP :

Where : Delta of GDP

GDPn: GDP in year n

Additionally, after calculating the GDP delta, we will analyze the change in the delta of GDP, using the formula :

Δ GDP delta = (%)

In which :

GDP delta (n) : Value of GDP delta between Korea and Viet Nam at the year n

GDP delta (n-1) : : Value of GDP delta between Korea and Viet Nam at the year before n

3 The differentials in the GNI per capital in both Vietnam and South Korea (%)

In general, GNI is the same as GDP, however, it also indicates the degree to which

a nation’s GDP represents domestic or international activity We calculate the differentials in GNI of each country as:

Where : the % change in GNI per capital

GNIn: GNI per capital in year n GNIn-1: GNI per capital in the year before year n

4 The differentials in the FDI of Vietnam and South Korea (%) :

Foreign direct investment (FDI) represents the net inflows from foreign residents in exchange of a claim controlling on firms (through equity) or on real estates, or further investment in an enterprise Also, the amount of foreign currency in an economy can affect the rates of currency exchange between two countries The change in FDI of each countries over the year is calculated by the formula:

Where : the yearly percentage change in each of the FDI value

FDIn: the differentials in one specific factor of two countries

in a specific year n

FDIn-1: the differentials in one specific factor of two countries

in the year before year n.

5 The differentials in the inflation rate between Vietnam and South Korea (%)

The inflation rate can reduce a currency’s strength, and thereby, affect the exchange rate Also, the Purchasing Power Parity theory (PPP theory) asserts that the domestic prices of goods in a country can influence the rate that the country’s currency is traded

at, or the exchange rate In terms of this research’s scope, instead of collecting each country’s yearly inflation rate, then subsequently calculate the yearly percentage changes, we would rather take the delta, or differences of inflation rates of the two countries for each year In other words, we will calculate the delta by subtracting the Vietnamese inflation rate by the Korean inflation rate in the same year, and then analyze the changes in the delta The formula to calcultate the change in delta inflation

is simillar to the previous sections

The trade balance refers to the difference of exports and imports within a country The Trade surplus occurs when the total exports exceed the total imports, and the trade deficit will occur in the opposite scenario In addition, when a country exports more than imports, a high demand of its currency from the foreign countries will be risen, which results in appreciation of its currency, and vice cersa In the scope of this research, only exports and imports occur between two countries, which is Korea and Viet Nam, be considered The ideaology behind this consideration is to exclude the foreign countries’ effect on the exchange rate of the two objects The value of export and imports in the two countries will be correlated and likely to be the same, since the export of Viet Nam is the imports of Korea, and vice versa Therefore, the absolute value of the net exports between the two countries are identical, which leads to the idea that there would be only one BOT in the data collection The formula to calcultate the change in delta inflation is simillar to the previous sections

3 Regression analysis result:

3.1 Summary output: Regression Statistics

This table show the statistical measures of how well the model fits the data The meaning of each data:

- Multiple R is Multiple correlation coefficient (0 <= R <= 1) It shows the

degree of the multiple correlation coherence

- R-squared is the percentage of the response variable variation that is

explained by a linear model It is always between 0 and 100% R-squared is a statistical measure of how close the data are to the fitted regression line It is also known as the coefficient of determination, or the coefficient of multiple determination for multiple regression

- Adjust R is the coefficient of determination of the modified sample It is the

coefficient of determination taking into account the magnitude or smallness of the degree of freedom df

- Standard Error: represents the average distance that the observed values fall

from the regression line Conveniently, it tells you how wrong the regression model is on average using the units of the response variable Smaller values are better because it indicates that the observations are closer to the fitted line

- Observation: is number of observations or sample size

III DATAANALYSIS AND RESULTS

Table 1: Summary of data

Presentation of dependent variable ( Exchange rate), and independent variables, including Delta Inflation, Delta GDP, GNI of Viet Nam, GNI of Korea, FDI of Viet Nam, FDI of Korea, and the BOT between Viet Nam and Korea

Table 2 : Regression test

Basing on the data collected, we conducted the regression test

From the regression test, it can be dictated that above seven independent variables, there are only three variables that are statistically significant, particularly GNI of Viet Nam, FDI

of Viet Nam, and the BOT between Viet Nam and Korea The p-value of them are 0.018, 0.009, and 0.00196, respectively, which are all smaller than 0.05 Therefore, we construct the model discuss the relationship between the Exchange rate of Korea and Viet Nam; the GNI of Viet Nam, the FDI of Viet Nam and the BOT between those two countries :

ΔEx = 1.2128*ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOTΔGNI(VN) + 0.01016 *ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOTΔFDI(VN) + 0.2177 *ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOT ΔBOT

From the model, the change in exchange rate is positively correlated to the change in GNI

of Viet Nam, FDI of Viet Nam, and the BOT between the two countries

IV EXCHANGE RATE CHANGE FORECAST FOR 2022 :

1/ GNI :

The change in Gross National Income per capital is usually correllated to the

change in Gross Domestic Products (GDP) As a result, to forecast the change in the GNO per capital, we will forecast the change in GDP per capital According to the National Assembly’s Resolution , the GNI per capital will reach the value of 3900 USD in the year 2022 The GNI per capital of Viet Nam was %2,660 in 2019 As a result, the growth rate of GNI per capital of Viet Nam will be 4.7% in 2022

2/FDI (Viet Nam) :

According to the data from Tradingeconomics, the FDI of Viet Nam forecasted for the 4th quarter of 2021 will be 22 Billion USD In addition, the forecast data of FDI

in Viet Nam for 1st quarter of 2022 will be 5 Billion USD Based on these data, we can calculate the change in FDI of Viet Nam as a decrease of 77.27% [(5/22-1)]

3/ BOT :

We temporarily assume that the growth in BOT between only Viet Nam and Korea will increase significantly in 2022, since the government has set the goal for

reaching 100 billion USD total export and import between Viet Nam and Korea The growth rate in 2022 will probably be 58.73% The total inports and exports was 63 billion VND

4/ Estimation of exchange rate :

ΔEx = 1.2128*ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOTΔGNI(VN) + 0.01016 *ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOTΔFDI(VN) + 0.2177 *ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOT ΔBOT

= 1.2128*ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOT4.7% + 0.01016 *ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOT (-77.27%) + 0.2177*ΔGNI(VN) + 0.01016 *ΔFDI(VN) + 0.2177 * ΔBOT58.73%

V CONCLUSION

In conclusion, the factors affecting exchange rate is expected to be the inflation, the GDP, the BOT, the FDI, and the GNI however, the regression proved that only the FDI, the GNI and the BOT are significant Therefore, only three factors can affect the exchange rate Using the model, the exchange rate KRW/ VND is estimated to have an increasing amount of 17.7%

VI Reference:

- https://solieukinhte.com/gdp-binh-quan-dau-nguoi-cua-viet-nam/

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https://laodong.vn/thoi-su/muc-tieu-2022-phan-dau-thu-nhap-binh-quan-dau-nguoi-dat-3900-usd-973342.ldo

https://baotintuc.vn/kinh-te/viet-nam-han-quoc-huong-toi-kim-ngach-thuong-mai-100-ty-usd-20211210195456370.htm

https://baodautu.vn/xuat-nhap-khau-viet-nam -han-quoc-vuot-moc-70-ty-usd-d157370.html