| dc.description.abstract | Due to the fact that the exchange rate fluctuation can affect business performance
but Vietnamese firms have not paid much attention to gauging or managing their foreign
exchange exposure, this research examines the relationship between the exchange rate and
its macroeconomic determinants, and then develops a framework to conduct macro stress
testing by combining modern techniques such as Monte Carlo simulation and Value-atRisk (VaR) approaches to predict the level of the exchange rate variation as well as the
expected losses that companies could suffer. This provides Vietnamese companies with a
systematic way to calculate, and to reserve risk capital for their currency exposures.
This thesis proceeded by showing that the exchange rate in Vietnam is negatively
impacted by the GDP growth rate and current account balance, and positively influenced
by the exchange rate (t-1) lagged, where t is time. Based on the resultant regression model,
VaRs of the exchange rate variation and the expected loss are computed by using three
different approaches, (i) variance – covariance matrix, (ii) historical simulation and (iii)
Monte Carlo simulation; in which the Monte Carlo gives the highest and most
conservative loss that companies should reserve for. Macro stress testing is applied to
create adverse scenarios and VaR is re-calculated in the stressed market conditions. In this
study, we used a hypothetical case of a Vietnamese company with a short position of USD
1 million (the methodology can be easily adapted to any Vietnamese enterprise), under the
more conservative Monte Carlo simulation, the minimum capital reserve for the
Vietnamese company to cover the abnormal stressed loss for the next quarter and at 99%
confidence is about VND 680 million (or approximately USD 31,000).
Keywords: Exchange rate, macroeconomic determinants, stress testing, value-at-risk,
capital adequacy. | en_US |
