The reason for selecting topic

1. The importance of exchange rate 2. Predicting the factors affecting the exchange rate.

1.2. The definition of the exchange rate

There are many different definitions of the exchange rate, the approach to different problems, sometimes by different expressions. The rate is one of the very interesting problems in an economy, especially in the economies of the developing countries, are gradually integrated into the world economy and participate in division of labor international activities, especially as our Vietnam. Because the international trade of these countries is growing and requires a calculation comparing prices, currency with the partner countries. The main rate is an important tool used in this calculation. To help readers have an overview of the exchange rate. In this section, we will present the basics of exchange rates , the factors affecting the fluctuation of exchange rates as well as the impact of fluctuations in the economy exchange rate. The next section discusses exchange rate policy and the role of these policies in the economy. Exchange rate be interpreted as the price of one unit of foreign

currency per local currency. This is the price of foreign currency on the market
and are determined based on supply-demand relationship foreign currency. Considered the core of macroeconomic management, exchange rate work backwards to economic relations, on the balance of international payments, on domestic commodity prices and currency circulation .. . Overall, exchange rate is divided into different categories depending on the purpose of consideration and research we decided to use any kind of rate. Exchange rate defined as the price of one unit of foreign currency and local currency is calculated by taking into account the purchasing power of money.

Exchange rate the nominal exchange rate is adjusted according to relative prices between countries. This rate increased domestic currency is considered the reduced price compared to foreign currencies and the exchange rate is reduced, the domestic currency is considered bi increase prices compared to foreign currencies. Exchange rate real effective exchange rate is adjusted for a number of the real exchange rate of the trading partners. This rate is considered an effective measure of the competitiveness of a country in trade relations with other countries because it considered the exchange rate between the currency of a country with many countries trade with countries it. Exchange rate the balance is the rate at which the economy and achieve inner balance (balance on the market non-commercial goods) and external balance (balance on current account). Real equilibrium exchange rate has an intimate relationship with other economic variables, it demonstrates the sensitivity of economic developments for macroeconomic policy, especially in the short and medium term. The exchange rate is the price of money is calculated in a different

currency. The exchange rate also means the exchange rate between currencies of
two different countries. Exchange rates appear and grow with the advent and development of international trade, it is explained by a simple phenomenon, goods without national boundaries in the money will only be accepted on national territory in its release. Exchange rate, means the exchange rate between two currencies is

high or low is determined by market forces, supply and demand. Supply

of foreign exchange currency is that the market wants to sell the local currency revenues. Demand is the amount of foreign currency that the market wants to buy in the local currency. Pricing foreign currency exchange rates are determined by supply and demand rules as for ordinary goods. When the supply of foreign currency greater demand for foreign currency exchange will decrease, means the exchange rate increases. Conversely, when demand is greater than the supply of foreign currency exchange foreign currency will increase, means the exchange rate down. position in foreign currency supply and demand of foreign currencies to determine the equilibrium, there is no pressure for exchange rate changes. I can imagine the exchange rate formation mechanism is understood marketing ru crying when another call on the foreign currency supply and demand. When the foreign

currency supply is greater than demand for foreign currency, foreign currency that the market should sell off more than the amount of foreign currency needed to buy, then there are some who do not sell will be willing to sell for lower prices and make price foreign exchange market decreased. Thinking the same, when demand is greater than supply, some people are not willing to buy foreign currency to pay higher prices and put pressure on the price of foreign currency in the market increases. When supply and demand for foreign currency foreign currency, foreign currency of that market by the same amount to buy foreign currency to sell to the exchange constant, the market equilibrium. We can see, the exchange rate market is always changing.

1.2, The importance of exchange rate

Exchange rate is one of the macroeconomic policies of each country is important. Evolution of exchange rate between USD with the Euro, the USD / JPY as well as exchange rate fluctuations between the USD / VND in recent years show that rates are a matter of current events, very sensitive. In Vietnam, exchange rate not only affects the import and export, trade balance, national debt, direct investment, indirect, but also affected the confidence of the people.

2.1, Predicting the factors affecting the exchange rate.

There are many factors that impact caused the fluctuation of exchange rates with the levels and different mechanisms.

The trade balance affect exchange rates. The trade balance of a

country is the difference between exports and imports. An economy when exports of goods and services will earn foreign currency. To continue the business, the exporters to sell foreign currencies for domestic currency, to buy domestic goods and services exported abroad. On the foreign exchange market supply will increase, making the exchange rate down. Conversely, when goods and services imports, the importers need foreign currency for payment to partners and to buy foreign currency on the market. This action increased demand for foreign currency, exchange rates rise. The effect of two opposite phenomenon is in the formation of exchange rates. Exchange rates will ultimately rise or fall depending on the level of impact strength of these factors, it is the trade balance. If a country has a trade

surplus, foreign currency supply greater than demand for foreign currency exchange rate will be reduced, the domestic currency to appreciate. When the trade deficits, exchange rate increases, local currency discount.

Foreign capital investment, calls affected residents wind up on

the domestic exchange of money used to buy property abroad, be it direct investment (plant, the establishment of enterprises the ...) or indirect investment (stock, bonds ...). These investors want to do business in need of foreign currency. They buy the foreign currency market, inflows of foreign currency outflow, the exchange rate will increase. By contrast, a country receiving investments from abroad, foreign currency inflows into the water flow, causing increased supply of foreign currency, the exchange rate down. Net foreign investment is the difference between capital inflows and capital inflows into a country. When investing abroad net positive capital inflows less domestic outflow of foreign capital flows, exchange rates rise. The exchange rate will fall in the opposite case, the first negative net investment abroad. As a rule optimization, capital flows will flow to where the most profitable, which is the highest profit performance. An economy that will attract capital flows to invest more when it has a favorable investment environment, political stability, the input is available with cheap, abundant labor resources skilled, large market, high interest rates and liberalization policies to attract foreign investment by the Government.

Inflation affects the exchange rate. When a country has inflation

reduced the purchasing power of domestic currency, with a constant exchange rate, domestic goods and services more expensive in foreign markets while foreign goods and services cheaper in the domestic market . According to the law of supply and demand, local residents will turn to more imported products than cheaper import growth, increased demand for foreign currency, exchange rates rise. Similarly because of price increases, foreign residents will use less than imports. Reduced export activity, foreign currency supply in the market decreases, the exchange rate increases. Thus inflation affects both supply and demand by increasing the foreign currency exchange, the combination makes the exchange rate rise faster. On currency markets, inflation as the currency devaluation, people will move to hold more foreign assets, increased demand for foreign currency

exchange rates pushed up. In the case of countries have inflation, the impact will depend on the relative inflation rates between countries. Country has higher inflation rates, national currencies will lose value fairly and exchange rate increases. And final factor is the most important factors affecting the exchange rate that is mass psychology. People, speculators, banks and business organizations as agents of foreign currency transactions directly on the foreign exchange market. Their trading activities to create demand and supply of foreign currency on the market. The activities were so dominated by psychological factors, as well as rumors on future expectations. This explains why, in the foreign currency price reflects expectations of the people in the future. If people expect that the exchange rate will increase in the future, people rushed to buy foreign currency, the exchange rate will increase even in the present; On the other hand, prices are sensitive to foreign currency as well as the main information government policies. If there are rumors that the Government would support export and import restrictions to reduce the trade deficit, people will simultaneously sell foreign currency and exchange rate will decrease rapidly. In fact, the exchange rate is driven simultaneously by all the above factors with different intensity levels of each factor, depending on the time and certain circumstances. The separation and quantification of the effects of each factor is almost impossible. These factors are inseparable from the combined effects may enhance or mutually ace, to make the exchange rate exchange rates fluctuate constantly. 2.2 Theoretical basis for the topic

http://economics.about.com/cs/economicsglossary/g/exchange_rate.htm
http://www.investorwords.com/1806/exchange_rate.html http://financial-dictionary.thefreedictionary.com/Exchange+Rate http://trifter.com/practical-travel/the-definition-of-foreign-exchange/