International settlement operation A case study of Agribank Cho Lon Luận văn thạc sĩ

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMIC HOCHIMINH CITY
j



PHAN MANH HA



INTERNATIONAL SETTLEMENT
OPERATION: A CASE STUDY OF
AGRIBANK CHO LON


In Banking and Finacial
Ology code: 60.31.12



MASTER’S THESIS

Supervisor : Dr.TRAN HUY HOANG





Ho Chi Minh City – 2010

i
Acknowledgment

The process of this master thesis writing was a wonderful learning experience on
my
academic life which was filled with challenges and rewards. The
completion of the
present study leads a new beginning and a step forward
towards my future.
This preface provides a welcomed opportunity and chance to
acknowledge the help and
assistance of the people who with their intellectual
insights or constructive criticism,
other times in the form of friendship have helped
me to develop this research. Specially, I would like to extend my appreciation to
Mr. Jerry and Mr.Gary for their valuable and enthusiastic support of English.
First, I would like to express my sincere gratitude to supervisor, Associate
Professor Ph.D. Tran Huy Hoang at the
Faculty of Banking, for his valuable
supervision, never-ending support and encouragement during this process. I am
very thankful to him, that he has given me
this pleasure to use his valuable
comments, feedbacks and suggestions during the time
that I have been working on
this thesis and he has presented a new world for my further academic research .
Outside of academia, I would like to thank all my friends and colleagues for
their fully support and
finally, the great thanks are directed to my family; My
father; that have taught me to get the priorities straight and to focus on the whole
instead of getting lost in the details; My mother who has meant me the real

meaning of patience and helped me by her advices to
have this thesis finished on
schedule and finally; my brothers and sisters for continues
support along the way.
Finally warm thanks go to University of Economic HoChiMinh City for
having developed this post-graduate course in English the first time and
sharing
consideration during this period of hard work.
Phan Manh Ha
August 2010
HoChiMinh City, Vietnam

ii
Table of Contents

Acknowledgment i
Table of contens ii
List of tables vii
List of diagrams vii
List of charts viii
Introduction 1
1. Rationale of thesis 1
2. The thesis’s research questions and research objectives: 2
2.1. Research questions 2
2.2. Research objectives 2
3. Scope and limitation of thesis: 3
4. Research Methodology 3
5. The thesis’s structure: 4
Chapter 1: International settlement operation of commercial banks in context
of international economic integration 5

1.1 Integration into the world economy in field of banking and finance 5
1.1.1 Common issues of integration into the world economy 5
1.1.2 Economic integration in field of banking and finance 6
1.2 The international settlement operation of commercial banks 9
1.2.1. Concepts 9
1.2.2. Role and the objective necessity of developing and improving
international settlement operation of commercial banks 10
1.2.2.1 For the economy 11
1.2.2.2 For the enterprises 11
1.2.2.3 For the state management 12
1.2.2.4 For commercial banks 12
1.2.3 Means of international settlement operation 13

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1.2.3.1 Bill of exchange 13
1.2.3.2 Promissory Note Payment: 15
1.2.3.3 Check 15
1.2.3.4 Payment card 16
1.2.4. Common methods of international settlement operation 16
1.2.4.1 Remittance 16
1.2.4.2 Collections 18
1.2.4.3 Documentary credit 21
1.3 Factors influencing international settlement operation of commercial banks 26
1.3.1. Objective factors 26
1.3.1.1 Globalization and economic integration. 26
1.3.1.2 Development of information technology 26
1.3.1.3. Practices and standards of international settlement operation. 26
1.3.1.4. Level of development and open of economy 28
1.3.1.5. Macro economic policies of government 28
1.3.1.6. Competition of other commercial banks 28

1.3.2. Subjective factors 29
1.3.2.1. Policy of customer care and developing products, services of
commercial banks 29
1.3.2.2. Policy of foreign affairs 30
1.3.2.3. Development level of banking technology 31
1.3.2.4. Structure of organization and management for international
settlement operation 31
1.3.2.5. Knowledge, ability of dealers in international settlement operation31
1.3.2.6 Other activities in relation with international settlement operation of
commercial banks 31
1.4 Some standards to evaluate the performance in international settlement
operation of commercial banks 32
1.4.1. Security and exactness 32

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1.4.2. Quickness and Timeliness 33
1.4.3. Logic settlement process 33
1.4.4. Satisfaction of Customer 34
1.5 Some experience of developing and improving international settlement
operation of other commercial banks in the world 34
1.5.1. Citi Bank 34
1.5.2. Hongkong and Shanghai Banking Corporation 36
Conclusion of Chapter 1 37
Chapter 2: Research Methodology 38
2.1. Research design 38
2.2. Data collection 40
2.3. Data Analysis 44
Conclusion of Chapter 2 47
Chapter 3: Current status of international settlement operation at Agribank
Cho Lon 48

3.1 Overview of organization and activities at Agribank Cho Lon 48
3.1.1. History of foundation and development 48
3.1.2. Organizational structure 49
3.1.3. Review of some main business activities of Agribank Cho Lon 49
3.1.3.1. Capital Mobilization 49
3.1.3.2. Loan 51
3.1.3.3. Foreign exchange trading and international settlement operation 53
3.2 Current status of international settlement operation at Agribank Cho Lon 55
3.2.1. Legal basis of international settlement operation at this branch 55
3.1.1.1. International legal documents 55
3.1.1.2. National legal documents 56
3.2.1.3. Agribank’s documents of internal regulations of international
settlement operation 56

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3.2.2. Current status of international settlement operation at Agribank Cho
Lon 57
3.2.2.1. Customers of international settlement operation at this branch 57
3.2.2.2. Current status of some main methods of international settlement
operation deployed at the branch 62
Remittance 62
Collection 65
Letter of credit 66
3.3 General comments of international settlement operation at Agribank Cho Lon
68
3.3.1. The results 68
3.3.2. Shortcomings 71
3.3.3 Causes of shortcomings 74
3.3.3.1 Objective causes 74
3.3.3.2. Subjective causes 77

Conclusion of Chapter 3 80
Chapter 4: Solutions for developing and improving international settlement
operation at Agribank Cho Lon 81
4.1 Some orientation of international settlement operation at Agribank Cho Lon81
4.1.1. Some orientation of foreign economic development of Vietnam from
2006 to 2010 81
4.1.2. Main orientation of international settlement operation at Agribank Cho
Lon 82
4.2 Some viewpoint of international settlement operation 83
4.3 Solutions for developing and improving international settlement operation at
Agribank Cho Lon 84
4.3.1. Establishing customer policy and marketing policy suitable for diffusion
of products and services of the branch 84
4.3.2. Modernization of banking technology 86

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4.3.3. Proposing a policy of service diversification 88
4.3.4. Improving management model, procedure of international settlement
operation 90
4.3.5. Well organizing foreign exchange trading, acting on initiative to have
foreign currency source suitable for requirement of the international settlement
operation at the branch 93
4.3.6. Solution for increasing quality of human resource 94
4.3.7. Increasing quality of control and internal audit 96
4.3.8. Constantly paying attention to establishment of business culture style at
the branch 96
4.4 Recommendations 98
4.4.1. For the government, ministries, departments and industries concerned 98
4.4.2. For State bank 99
4.4.3. For customers 100

4.4.4. For Agribank 100
Conclusion of Chapter 4 101
Conclusion 102
Appendices 103
List of References 110











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List of Tables

1. Table 2.1. Exhibition of payment sales under method of remittance 45
2. Table 3.1. Capital source of Agribank Cho Lon in recent years 50
3. Table 3.2. Some items of outstanding debts at Agribank Cho Lon 2006-2009
52
4. Table 3.3. Some main items of foreign exchange trading and international
settlement operation at Agribank Cho Lon 54
5. Table 3.4. Sales of some main customers in international settlement operation at
the branch in 2009 58
6. Table 3.5. Sales of some main import export commodities at the branch 61
7. Table 3.6. Payment sales under method of remittance 63

8. Table 3.7. Payment sales under method of collection 65
9. Table 3.8. Payment sales under method of letter of credit 67
10. Table 3.9. Some indicators of loans for import and export at the branch 70
11. Table 3.10. Some key indicators for comparison 72
12. Table 3.11. Comparison of export payment and import payment at the branch .73




List of Diagrams

1. Diagram 1.1. Process of remittance operation 17
2. Diagram 1.2. Process of collection operation 19
3. Diagram 1.3. Process of documentary credit 23



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List of Charts

1. Chart 3.1. Capital source of Agribank Cho Lon 2006-2009 51
2. Chart 3.2. Outstanding debts at Agribank Cho Lon 2006-2009 53
3. Chart 3.3. Main items of foreign exchange trading and international settlement
operation at Agribank Cho Lon 54
4. Chart 3.4. Sales of some main customers in international settlement operation at
the branch in 2009 59
5. Chart 3.5. Customer’s assessment of international settlement operation 60
6. Chart 3.6. Sales of some main import export commodities at the branch 62

7. Chart 3.7. Payment sales under method of remittance 64
8. Chart 3.8. Payment sales under method of collection 66
9. Chart 3.9. Payment sales under method of letter of credit 67
10. Chart 3.10. Some key indicators for comparison 72
11. Chart 3.11. Comparison of export payment and import payment at the branch .73




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1. Rationale of thesis
Vietnamese economy has widely integrated itself into the regional and world
economy. Along with other activities, foreign trade has constantly affirmed to an
important role in Vietnam economic development. Commercial banks, by launching
the international settlement operation have, according to the “Open Door Policy”
on integration, become undeniably essential to the development of the economy of
this country. In addition, to better promote their role and position in speeding up
foreign trade activities, the system of commercial banks in Vietnam have
continuously worked to develope and improve the international settlement
operation. In these recent years, the efforts of the system of Vietnam commercial

banks have fostered advantageous conditions for the international settlement
operation to become increasingly enhanced day by day, fulfilling the basic
requirement of open process and integration of economy.
However, international settlement operation must undergo legal systems and
complicated overseas practices, if it was not to be fully understood, risks that
include economic, politic and social losses would inevitably arise. Lessons learned
from the past strongly suggest that the working of Vietnam commercial banks are
not to be ignored.
The international settlement operation of Agribank has now been deployed for 10
years, yet Agribank has been encountering countless difficulties and insufficiencies
in the widening of its active market share. In the context of integration into the
world economy alongside tough competition, commercial banks must incessantly
develop and widen their trade activities. Among those banks, the international
settlement operation was utilized in order to broaden and improve to meet customer
needs. Furthermore, the operation helped increase the bank’s income and enhance

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the availability of competition. Now, however, all banks in Vietnam and Agribank
Cho Lon in particular are facing a great deal of difficulty as they put forth their
efforts to overcome this obstacle. Evaluating the efficiency of the international
settlement operation at Agribank Cho Lon leads to the realization that
improvements to this operation must be scientifically based.
From above mentioned practical issues, subject of this thesis “International
Settlement Operation – A case study of Agribank Cho Lon” was taken into
consideration for more in-depth research. This research evaluates the performance
of international settlement operation at Agribank Cho Lon, and proposes possible
solutions for the development and improvement of the operation.

2. The Research Questions and Objectives:

2.1.
Research questions
A research question is the researcher’s translation of the business problem into the
need for inquiry (Zikmund 1997, p.88). Based on this definition of research
problem leads to the following research questions:
- How can we evaluate the current status of the international settlement operation
at Cho Lon branch during the past few years?
- What were the achievements and shortcomings of the international settlement
operation at Cho Lon branch?
- How can we develop and improve the international settlement operation at Cho
Lon branch?

2.2. Research objectives
The research objective is the researcher’s version of a business problem. Once the
research questions have been stated, the research objectives are derived from the
problem definition. These o
bjectives explain the purpose of the research in
measurable terms and define standards of what the research should accomplish

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(Zikmund 1997, p.89). To solve the research problem delineated, this study has the
following objectives :
- To make clear literature of international settlement operation
- To point out factors influencing the international settlement operation
as well as standards for evaluating the quality of the international
settlement operation
- To analyze actual efficiency of the international settlement operation
applied at Agribank Cho Lon in period of time between 2006 and
2009
- To suggest solutions for developing and improving the international

settlement operation .
3. Scope and limitation of the thesis:
The thesis mainly focuses on development and improvement of the international
settlement operation at one bank, Agribank Cho Lon in period of time between
2006 and 2009.

4. Research Methodology
The exploratory research
has been conducted for this research to clarify and
define the nature of problem. In this research, survey and secondary data
methods were applied in combination.

Survey was chosen as a research tool in this study to investigate, describe the
performance and identify the appropriate performance measurement of the
international settlement operation at Agribank Cho Lon. The questionnaires were
designed to collect data related to international settlement operation at Agribank
Cho Lon. Also discussions with experts were taken to identify the appropriate
performance measurement of the international settlement operation at Agribank Cho
Lon. Surveys by questionnaires were used because they provide quick, efficient and
accurate means of accessing information about the population and the subject of
study. In addition, they are more appropriate in cases where there is a lack of

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secondary data. In this case, secondary data concerning performance and
performance measurement of the international settlement operation at Agribank Cho
Lon was insufficient, making it necessary to conduct a survey to gather the needed
information.
The secondary data method was also used to investigate the performance of the
international settlement operation at Agribank Cho Lon. Variables such as ratios of
import export payment, ratios of commodities, and ratios of payment methods were

derived from annual reports from Agribank. Some comparisons were depicted in
tables. Procedures of the international settlement operation were outlined by
diagrams.
Source of information: Source of data was collected from banking magazines and
annual reports from the State bank of Vietnam, annual reports from Agribank.
Limitations of data source: Data was mainly collected from a period of 4 years:
2006, 2007, 2008 and 2009.

5. The thesis’s structure:
Along with introduction, conclusion, list of tables and diagrams, list of charts, list of
references, the main body of the thesis was constructed into 4 chapters detailed as
follows:
Chapter 1: International settlement operation of commercial banks in context of
international economic integration
Chapter 2: Research Methodology
Chapter 3: Current status of international settlement operation at Agribank Cho Lon
Chapter 4: Solutions for developing and improving international settlement
operation at Agribank Cho Lon




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1.1 Integration into the world economy in field of banking and finance
1.1.1 Common issues of integration into the world economy
Today, the globalization makes the international economic integration become a
reality. It attracts all countries, from rich ones to poor ones and large ones to small
ones without exception. This integration is regarded as a key factor for a country’s
development. If the integration were done well, there would be extensive
opportunities for favorable social and economic development; on the contrary, any
country that fails to integrate would have little chance for economic development.
International economic integration involves a high level of international economic
cooperation. It is a process in which a country participates in a common
organization, a generally international trend. It is this process that incorporates each
country into the world economy. Integration is a global tendency which influences
all countries, even to countries that have not yet taken part in integration. As a
matter of fact, the influence of integration is very strong, not only affecting the
economy but also politics, culture and society. Any country implementing

integration must adjust its policies and laws to implement the integration process
successfully and efficiently.
This matter clearly shows that integration is a factor to development but it is only a
potential one. To turn it into the truth in strategy of economic development,
countries always have to have an art of combination between external and internal
strength to make a propulsive force for economic growth.
In fact, many countries execute open policy more deeply and obtain more economic
achievements and vice versa; however, it doesn’t imply that any country carries on
the process of open door policy and integration will achieve success immediately.
The results mainly depend on the way and art of integration of each country after

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preparing the premises and internal conditions of the economy maturely. Theories
of international commerce from the past up to now affirm the benefit of each
country when participating in international trade. However if a country enters the
global playing-field only for the benefit of buying goods and services with good
prices, but fail to find the way to sell its goods and services, it will gain low profit in
comparison to the cost it pays. The payment balance will always be deficient,
unstable issues will always appear.
For developing countries, economic integration is a good chance to find the
opportunities to speed up their underdeveloped economy; however, because of
being poor country means that the economy of these countries will have
insufficiencies. These things limit the ability of attraction and utilization of external
sources as a target for development. Sometimes, the cost of executing the
integrative strategy is simply too expensive. Therefore, to integrate effectively,
these countries have to find the solutions for their internal problems. The process
can not be shortened, it may even have to be lengthened if there is no alternative.
However, if the internal insufficiencies were solved quickly and effectively, the
integration process would bring these countries with many opportunities to speed up
their economy, shorten the lead-time of industrialization, and keep up with

developed countries.

1.1.2 Economic integration in field of banking and finance
International economic integration happens in different fields, in which the fields of
banking and finance are both the premises and results of other fields. The nature of
integration in the field of banking and finance is a process in which countries
gradually open the door for one another to participate in the banking and financial
activities of each participating country. Because the banking and finance section is
the pharynx in economic body of each country, opening the door in this area is
always an important and sensitive problem. Activities of banking and financial
services have organic relations with other economic fields, they are also fields that

7
bring back much profit, therefore countries must always be cautious about how they
handle opening the door of this economic field.
In comparison with other economic fields, integration of banking and finance is
characteristic as follows:
First, this is the process of capital source movement among financial markets. This
can become stronger and stronger and is many times larger than the commercial
scale among countries.
Second, integration of banking and finance is both the result and motivation of the
development of technological science in the world. The development of
technological science is a factor that enhances fast and efficient integration of
banking and finance. Nowadays, transactions are effected quickly and safely:
Billions of US Dollar are dealt with among semi-global distant markets in a matter
of 30 seconds with a high level of security. Transactions can be thousands of miles
away but customers feel very close here…Obviously, technological science
“shortens” distance among people, boundaries among countries have become faint
in the age of technological scientific revolution. It is this thing that makes financial
markets very close in all aspects.

On the contrary, integration of banking and finance create the motivation for the
development of technological science day by day. Opportunities for trading in the
exchange market can happen very fast, so timing is always the key problem in
exchange trade. Customer demands in international trade always require efficiency,
accuracy and security…these requirements can only be met with using developed
technological science. The development of technological science is the premises for
banking development of traditional services as well as new service, and it increases
customer convenience in the open economy.
Third, integration of banking and finance changes the practice of monetary trade.
Because activities of banking and finance have relationships with other economic
activities, integration in this field forms a stable basis for the effective integration of
other fields. If so, regulations, laws and monetary financial standards need to be

8
modified so that they are similar to international custom and practice, by
conforming to an identical competitive environment. Trading practices in different
markets need to be changed so that they make opportunities for capital flows to
move easily across the globe.
Fourth, integration of banking and finance leads to the tendency that countries will
depend more on one another. Along with the open-door tendency of the monetary
financial market, any economy turbulence happens in one countries will in turn
affect the economics of the others. The benefit of a complete dependence among
countries is that economic development of a group of countries or of an area lead to
the development of the others. This is the result of monetary financial integration
that involves compromises between investment liberalization and free trade.
However, this also brings up some unwanted impacts: such as the situation of
inflation import, an economic crisis import that has often been termed a
phenomenon in recent years. This is the unavoidable consequence of stage of
globalization, international economic integration.
Integration in the field of banking and finance is rendering competition in this field

fiercer all the time. Unlike competition in other fields, competition in the field of
banking and finance has specific characteristics: (1) Rivals both compete and
cooperate together in the sensitive business; rivals must direct their attention to one
common sound environment to avoid a system risk which could lead to the collapse
of serial banks; (3) Competition in the environment under the control of the Central
Bank in each country or in area; (4) Competition depends not only on internal
factors but also on external ones ( business environment, country custom, financial
infrastructure,…)
For the Vietnam banking system, international integration will open opportunities
for cooperation as well as an exchange of experience. These things will help to
propose solutions and apply efficient tools in businesses to prevent risk and enhance
the prestige and position of the Vietnamese commercial banks in international
financial transactions, they will also make good conditions for capital, technology

9
and management experience. Along with the integration process, legal environment
and monetary policies of Vietnam will be improved quickly, commercial banks will
have to specialize more deeply in modern banking profession and deploy new
banking products and services for wider market share at home and abroad.

1.2 The international settlement operation of commercial banks
1.2.1. Concepts
* Settlement: There are many concepts of settlement but generally settlement is the
payment of a party to another for having used or possessed goods and services, or
some specific rights.
Settlement is the payment following each trade or exchange of goods and/or service.
Settlement is the final stage of relation between goods and money that is built on the
basis of each party’s satisfaction
* International settlement: Terms of international settlement are expressed in many
different ways:

- International settlement is the method of settlement by bank for import and export
enterprises in different countries.
- International settlement is the settlement of money in relation with trading or the
supplying of goods and/or services between organizations or individuals in this
country and those of other countries, between one country and other international
organizations. This is put into effect by banking relations of the countries involved.
In general, international settlement is the settlement of monetary obligations and
monetary requirements generating from relations between economy, commerce,
finance, and credit among international economic organizations, enterprises, and
individuals in different countries. It ends an operation process in the field of
external economy under different forms.
The nature of international settlement is an operation in which the banks are
intermediary institutions which use their experience, knowledge, and professional

10
skills make the payment safe and efficient, and also to protect the client’s benefit in
transactions of payment as well as increase the bank’s profit.
Ultimately, international settlement arises from world trade activities, it is the last
stage in the process of trading and exchanging goods and services among
organizations and individuals in different countries. If the international settlement
operation were well organized and performed quickly, safely, efficiently and
precisely, it would make an active effect to foreign trade activity of a country.
International settlement is different from domestic payment (inland operation), it
often relates closely to currency exchange among different countries. The domestic
currency with functions as means of circulation, means of payment will not excess
its value if two parties in the contract do not reach to a specific agreement. Hence ,
the currencies of foreign transaction are normally stated with precision in
international credit agreements and foreign commercial contracts by negotiating
parties. Currencies used frequently in international settlement are ones with the
ability to participate in free exchange, such as USD, GBP, JPY, and EUR. However,

USD still plays a key role in international settlement by its convenience and
efficiency in transactions performed. Now, most payments in international
settlement are by telex, SWIFT, order for collection, or order for payment among
banks concerned, therefore the ratio of cash payment is very small.

1.2.2. Role and the objective necessity of developing and improving
international settlement operation of commercial banks
Because international integration is happening intensely, each country that wants to
develop also has to have complicated and diversified international relations
concerning its economy, politics, society, culture, etc…Among them, economic
integration always plays a key role and maintains an influential position in other
fields. The process of economic integration indispensably develops demand for
payment. The more economic integration progresses, the higher the need of
international settlement. The international settlement operation has an important

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role in ensuring the circulation of international economic relations, and promoting
the development of import and export enterprises as well as the growth of
commercial banks.

1.2.2.1 For the economy
The international settlement may be the last stage in the international exchange of
goods and services, but it is certainly one of the most important stages of all. If not
for the international settlement operations, the international commercial operations
in particular and the external economic operations in general would hardly exist,
and much less have room for development. Therefore, the development and
improvement of the international settlement operation is an objective requirement,
thereby it sets the stage for the external economy to develop. If foreign trade
develops, a country could utilize the advantages efficiently, and thus promote good
and stable economic growth, all resources would be explored and used efficiently.

1.2.2.2 For the enterprises
The international settlement is a factor directly affecting business outcomes.
Development and improvement of international settlement makes opportunities for
enterprises to participate in international commercial operations, because:
(1) If payment were effected quickly, the time for capital turnover would be
shortened, efficiency of capital would increase along with growth of sale and profit
of participating parties.
(2) Through international settlement operation, we can justify financial ability,
prestige and economic potential of each participating parties;
(3) If international settlement were effected quickly, safely and efficiently, domestic
production would then be able to export goods abroad.
In short, the international settlement is an important link that is indispensable to
foreign trade if it is seriously considered under both space and time. The more
favorable the international settlement is, the more business relations can be

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consolidated and widely opened. Like linking a chain, these payments can be
processed more quickly, which will not only increase overall capital turnover and
business outcomes, but also will pull other links of the chain toward its orbit and
strengthen the motivational power for the development of the economic machine.

1.2.2.3 For the state management
First, through the control and management of the international settlement operation,
the government could regulate the inflow and outflow of foreign exchanges, and
make a basis on which to propose fiscal policies and effectuate them. By controlling
the international settlement operation in commercial banks, the government could
manage the import-export operation, forming the basis on which to regulate current
balance. Moreover, through these, the government could propose appropriate
policies of foreign trade to maximize the benefit from international settlement

operation. World trade is not only a commercial instrument but also a tool that can
be used to implement social and political intrigues of other countries, bloc of
countries, and the forces in the world. Therefore, the international settlement is very
important in macro-management of government. The government could control
foreign loans, and use of these loans to understand all parties’ purposes.
Second, through practical matters of international settlement, the government could
adjust inadequacies in the ruling system, policies relating to international
settlement, so that they would be suitable for the new situation, and ensure the
lifting of all barriers, and promote the foreign trade development.

1.2.2.4 For commercial banks
In the context of integration, a vast field of operation for commercial banks has
been opened due to international commercial activities becoming more popular and
the need for international settlement, loan in foreign currency, and foreign exchange
trade increasing. If commercial banks utilize the international settlement operation
efficiently, they will obtain means to attract more clients and affirm their brand

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name in business. Therefore, the development and improvement of the international
settlement operation has become an objective for the commercial banks to execute
their customer strategies.
The international settlement operation is a banking activity that makes income with
fewer risks in comparison with traditional banking products. Through the
development of the international settlement operation, banks have received more
income from many kinds of charges and fees. Moreover, as mentioned, the
development and improvement of the international settlement operation is an
efficient way to up prestige and trade name of the banks in market, attract more
potential clients, and develop new kinds of products to increase income. These help
to diversify banking activities and minimize risks in business.
The international settlement operation is different from other activities in that banks

have relations with not only their clients but also a network of corresponding banks
in the world, and through it, commercial banks gain opportunities to approach
oversea customers as well as make an image in the worldwide economy. This
promises a firm basis for the developing market in the future.
As in above mentioned analysis, the development and improvement of the
international settlement operation is an objective requirement of commercial banks
in context of world integration of economy. It helps banks to properly execute their
customer strategies, and affirm their trade names in the world community step by
step.

1.2.3 Means of international settlement operation
1.2.3.1 Bill of exchange
A bill of exchange plays an important part in the commercial life of a country. The
need for it arises when the buyer of goods needs a period of credit before paying it;
it is drawn by the creditor and is accepted by the debtor. According to the Bill of
Exchange Act of 1882: A bill of exchange is an unconditional order in writing,
addressed by one person to another, signed by the person giving it, requiring the

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person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to or to the order of a specified person, or to the
bearer.
A bill of exchange must be in writing. It must contain an order to pay. The order to
pay must be unconditional. If it is subject to the happening of some events, it will
not be considered a bill of exchange. It must be signed by the drawer and properly
stamped. The parties to the bill, the drawer and the drawee and payee must be
certain and definite individuals. The amount payable must be certain. The payment
must be made in money and not in other kind.
From above mentioned definition of bill of exchange, we can deduce three main
characteristics from it:

Abstract: There must not be content of credit relation on the bill of exchange; it
terminates obligation implying from causal relation; the bill of exchange only
contains an order to pay. The amount payable must be certain.
Obligatory to pay: The payee must pay the sum payable as stated on the bill of
exchange and cannot quote private reason to reject payment for the drawer or
endorser, unless the bill of exchange is made illegally. The order to pay must be
unconditional.
Transferable: Bill of exchange could be negotiated one time or many times in its
maturity.
A bill of exchange must comply with regulations of appearance and content to be
legally valid.
+ For appearance: The bill of exchange must be in writing. The bill of exchange is
often made in two copies with the same legal value.
+ For content: The bill of exchange must have the title, specific place, and date of
issue of the bill, unconditional order, specific amount in digits and in words,
specific names of both the payer and the payee.

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With the obligation to pay and abstract, the bill of exchange can be used as a
convenient means of circulation in the foreign exchange market.

1.2.3.2 Promissory Note Payment:
A promissory note is an unconditional promise in writing made by one person to
another signed by the maker engaging to pay on demand or at a fixed or determinable
future time a sum certain in money to or to the order of a specified person or to the
bearer.
In general, legal principles of bill of exchange are often used to explain the
specified factors of promissory note, such as: endorsement, time of payment, sum of
money, way of making, etc. However, a promissory note has some main
differences from a bill of exchange, as follows:

- Drawn by one or many people in order to promise to pay
- Presented for payment without any prior acceptance by the maker
- Set into one copy
- Used in both commercial and non-commercial deals, but rarely in the former.

1.2.3.3 Check
A bill of exchange is made on the basis of commodity circulation when check is on
the basis of banking credit circulation. Check is written order by one person to his
bank to pay the bearer, the person designated in it or to the order of presenter a
specific sum on a definite date sometime in the future.
Check is a means of payment used for many years; it is not only used popularly in
internal payment of countries but also used in international settlements of
commodity, service, and non-trade payment. Because check is an unconditional
order of payment, bank will honor a check if the funds of the drawer are sufficient
and the check is properly presented.
In general, countries using checks as means of international settlement must meet
the following regulations : Geneva Convention and Uniform law check ULC 1931.

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According to the convention, to be in conformity with legal regulations, a check
must have title, clearly sum of money in digits and in words, date and place of
issuance, name and address of drawer, account with institution, name and address of
beneficiary and the signature of drawer. To issue a check, the drawer must have
sufficient funds in their bank account; amount on check must not exceed its account
balance. The time of payment must be mentioned clearly on the face of check.
Because it is characteristic of check payment to depend on a time-limit and the
drawer’s account balance, check is used much more often in non-trade activities
than in trade activities.

1.2.3.4 Payment card

Payment card used in international settlement is mostly employed in non-trade
activities. This means of payment is more and more developed in stage of modern
science and technology, especially when means of communication is more and
more perfect.
This tool requires specialized modern electronic machines. Payment card depends
on the time of validity and initial account balance at issuing place. It is often used to
settle small sum of money in travel.

1.2.4. Common methods of international settlement operation
Method of payment is the most important condition in sale contracts. Method of
payment is used to clear the way the sellers collect money and how the buyers effect
payment. In commercial relations, people may choose many different methods of
payment to pay and receive money. Some common methods of international
settlement are hereunder mentioned:
1.2.4.1 Remittance
* Concept: remittance is a method of payment in which a customer (buyer, payer,
importer) asks his or her bank to transfer a sum of money to a defined place in favor
of a beneficiary (seller, service supplier, exporter) by means of money transfer that