This study concentrated on a number of key variables, including the USD/VND exchange rate as a dependent variable and the GDP, interest rate, FDI, and broad
money supply as independent variables. As a result, the conclusions are founded on and limited to those macroeconomic considerations.
Second, this study relied on secondary data, which is quantitative in nature and leaves out qualitative factors that have an impact on the country's exchange rates.
Since we were unable to get the exact statistics for each month, we also took the liberty of obtaining monthly GDP and FDI using data from quarterly GDP and FDI.
This is one of the reasons that may cause measurement error for our model to have heteroskedasticity and autocorrelation.
This research focused on inflation rate, GDP, interest rate, FDI and broad money supply effects on forex rate. We recommend an additional study using moderating and intervening variables that may influence exchange rates in Vietnam.
The study also suggests doing further research to examine additional macroeconomic factors, as well as government rules and policies, in order to ascertain how they affect the exchange rate in Vietnam. We certainly expect that future research will use precise data from reliable sources in order to get the most accurate results. Additionally, it might be conducted in other nations within the same region, such as the ASEAN nations, in an effort to thoroughly explore variables influencing the exchange rate.
CONCLUSION
Our research aimed at assessing the effect of Inflation rate, GDP, Interest rate, Foreign direct investment and Broad money supply M2 on foreign exchange rates USD/VND in Viet Nam. To attain the aim of this research, secondary data will be entirely used. The research applied monthly data for a period of 12 years from 2010 to 2021. The study also carried out tests on multicollinearity testing, heteroscedasticity testing and serial correlation testing. Analysis of data was done by the use of OLS regression model and multiple regression analysis with time series data.
The results on summary statistics established that inflation rate does not have effect on exchange rate USD/VND during this period, which is out of our expectation as inflation rate is believed to have great influence on exchange rate according to theory and other earlier research. It can be explained for some reasons. Firstly, if inflation is expected, it is already priced into the exchange rate. This means that the exchange rate will not change significantly when inflation actually occurs.
Secondly, other factors can have a greater impact on exchange rates than inflation.
Finally the reason I believe to be most reasonable is that central banks had intervened in the foreign exchange market to buy or sell currencies in order to influence the exchange rate. If the central bank believes that inflation is having a negative impact on the exchange rate, it can buy its own currency in order to strengthen it. Vietnam's central bank is also doing well using this method in recent years especially when the US continues to increase interest rates, which threaten inflation rate and also exchange rate in Vietnam and other countries around the world.
The GDP of Vietnam during this period fluctuated, however, it increased. GDP is shown to have an effect on the USD/VND and it is a negative relationship. Higher GDP leads to higher demand for imports. People are earning more money and spending more money. This increased spending leads to higher demand for imports, which puts upward pressure on the exchange rate. Besides, as GDP increases, the
lead to a stronger exchange rate, as higher interest rates make it more attractive for foreign investors to hold the country's currency.
Interest rate also had a negative relationship with exchange rate. In our research period, interest rates have decreased trend, this is a good sign when interest rates fall, the value of a currency tends to rise. This shows that Vietnam had done well to keep interest rate low and let the economy develop stably.
Our research shows the positive relationship between foreign direct investment and exchange rate. This is easy to conclude as a higher foreign exchange rate makes it cheaper for foreigners to buy goods and services from the country, which increases demand for those goods and services and raises their prices. In our research period, FDI had a trend to increase.
Broad money supply M2 also had a positive relationship with the exchange rate. In our period, the broad money supply M2 and exchange rate USD/VND both went up.
It is explained that when the money supply increases, it can lead to lower interest rates and increase in imports, which lead to an appreciation of the exchange rate.
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