Risk of exchange rate in international payment

CONTENT
INTRODUCTION

THEORETICAL BASIS

ANALYSIS/ CASES

RECOMMEND/ CONCLUSION


TOPIC
RISKS OF
EXCHANGE RATE
IN INTERNATIONAL
PAYMENt
INTRODUCTION


Vietnam’s import and export turnover, Balance of Trade in the period of 2015 to 2019
300

264.19

250

243.7
215.1

200

150

162

176.6

165.6

253.07

236.9

213

174.8

100

50

0

2015

-3.6

2016

1.8

2017

2.1

2018

6.8

11.12
2019

-50
Export

Import

Balance of Trade

Statistic from General Department of Vietnam Customs


The Importance of Exchange rate
• Globalization & Integration
• Balance of Payment
• Balance of Trade
• Economic Health (aside with
Inflation and Interest rate)
• Factors that attract foreign
investors

THEORETICAL
BASIS


Exchange rate
An exchange rate between two
currencies is the rate at which
one currency will be exchanged
for another. It is also considered
as the price of one country's
currency expressed in another
currency.


Exchange rate

Movements of other currencies against USD


Exchange rate


Check Rates
Mail Transfer Rates
Wire Transfer Rates
Instant Bank Draft Rates

Postpaid Bank Draft Rates

Currency exchange

rate classification


Transfer rates

Currency exchange
rate classification

Bid rate and ask rate
Cash foreign currency rates
Spot rate and forward rate
Opening rate and closing rate


Exchange rate mechanism

The impact of the law of
Supply - Demand: Exchange
rate is a special commodity, so
it is also affected by Supply
and Demand and the strength
of the domestic foreign
currency.


Trade exchange

F
A
C

T
O
R

The income of each country

The inflation difference between
the two countries
The interest rate differential
between countries


Effects import and export activities

Compare the
purchasing
power of currencies

Effects the
inflation situation


Cases in exchange rate risk
in international payments

Trading

Financial

Economic

Risk

Risk

Risk


Cases
Analysis


Trading Risks

On March 2th, 2020, LOOK company signed an import
contract for a partner in the US. Contract value USD
100,000 with spot exchange rate on 02/03/2020 of
23,241 VND/USD, payment by L/C with 3 months
deferred payment (L/C is due on 02/06/2020) 


Case 01

Payment first, import goods later is the actual
exchange rate at the time of such payment.
(23,241 VND/USD) 

Payment
Import goods

Case 02

Import goods first, pay later is the exchange
rate at the time of payment for goods later.
(if 23,230 VND/USD profit 1,100,000 VND and
23,256 VND/USD loss 1,500,000 VND)


Case 03

Purchase of goods with prepayment to the
seller in a foreign currency and the rest is
recorded at the actual exchange rate at the
time of receipt of the goods.

Because the exchange rate is an
unpredictable variable, the
import cost in VND may increase
or decrease


Trading Risks

02/03/2020, KATY company signed an export contract
for a partner in the US. The contract is valued at USD
100,000 with a spot exchange rate on 02/03/2020 of
23,241 VND/USD, paid by 3 months deferred payment
L/C. If the exchange rate on 02/06/2020 is 23,256
VND/USD

Receiving payment
from exporter first,
exporting goods later
is the actual
exchange rate at the
time of receipt of
payment.

Case 01


Exporting goods first, receiving
payment from the exporter later
is the exchange rate at the time of
receipt of payment.

23,256 VND/USD

1,500,000
VND

Case 02

23,230 VND/USD

1,100,000
VND

Sale of goods has received advance payment from
the importer in a foreign currency and the rest is
recorded at the actual exchange rate at the time of
receipt of the entire remaining amount

23,256 VND/USD

1,050,000 VND

Case 03

23,230 VND/USD

770,000 VND


Impact of exchange rate risk on Import and Export

For exporters

For importers

have a great impact on the profitability of the business

can be devastating to companies whose business relies
heavily on international transactions


Financial risk

Impact on Financial factors

Multinational Corporation (MNC): is the one that has business operations in two or
more countries