Quote:
Originally Posted by seabass
Easy to answer : if you buy a bottle of coca cola at 10,000 dong and next month it cost 11,000 dong the dong has devalued by 10% ( approximately )
The economic theory is a bit difficult to explain but it is called Fisher's Equation. It has to do with a person perception on expectation of future inflation.
What the government is doing is this : the devaluation is to trigger a increase in economic activity. If the VN currency is deem as cheaper, then the demand for VN product will increase. The opposite is true; foreign goods will become more expensive. The move to devalue the dong will have an effect on the real interest as compare to the nominal interest.
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Lol are we in econs class?
Ur analogy of the coca cola is more of inflation, not exchange rate changes.