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MINISTRY OF EDUCATION MINISTRY OFAND TRAINING ng UNIVERSITY OF ECONOMICS HO CHI MINH CITY UNIVERSITY OF hi ep w n lo ad ju y th yi pl NGÔ TRẦN KIẾN QUỐC n ua al n va ll fu RISK MANAGEMENT OF EXCHANGE RATE m oi IN FOREX TRADING nh at CASE STUDY OF COMMERCIAL BANKING SYSTEM z z IN HO CHI MINH CITY k jm ht vb om l.c gm MASTER THESIS n a Lu n va y te re Faculty of Banking Ho Chi Minh City – 2010 ac th 2010 MINISTRY OF EDUCATION AND TRAINING ng UNIVERSITY OF ECONOMICS HO CHI MINH CITY hi ep w n lo ad ju y th yi pl NGÔ TRẦN KIẾN QUỐC n ua al n va RISK MANAGEMENT OF EXCHANGE RATE fu ll IN FOREX TRADING m oi CASE STUDY OF COMMERCIAL BANKING SYSTEM nh at IN HO CHI MINH CITY z z vb k MAJOR CODE: 60.31.12 jm ht MAJOR: BANKING AND FINANCE n Associate Professor Ph.D TRẦN HUY HOÀNG a Lu SUPERVISOR om l.c gm MASTER THESIS n va y ac th 2010 te re Faculty of Banking Ho Chi Minh City ng RISK MANAGEMENT OF EXCHANGE RATE IN FOREX TRADING A CASE STUDY OF COMMERCIAL BANKING SYSTEM IN HO CHI MINH CITY hi ep w Certificate……… ……………………………………….… ……………………………………………………………… …………i Acknowledgement……………………………… ………………………………………………………………….….…………i Abstract……….…………………………………………….…………………………………….…………………………….………… iii Table of contents…………… ………………………………………………………………….………….…….……………… iv List of tables……………………………….…………………….…………………………………….…………… …………………v List of graphs.………………………………………………………………………………………….…………….…….………….vi Abbreviations………….……………………………….…….………………………………………………………………………vii n lo ad ju y th yi pl al n ua Chapter one: Introduction to the study…………………………………………………………………… n va 1.1 Rationale of the study…………………….……………………………………………………………………………… 1.2 Research problem……………………………………………………………………………………………… ………… 1.3.1.1 Research questions…………………………………………………………………………………………… 1.3.1.2 Research objectives…………………………………………………………………………… ………… 1.3 Justification for the study…………………….………………………………………………………… ………… 1.4 Research methodology……………… …………………………………………………………………… ………… 1.5 Research subject and scope of the study…………………………… ……………………… ……… 1.6 Significance of the study……………………… …………………………………………………………… ……….5 1.7 Structure of the study………………… ………………………………………………………………………………….6 1.8 Limitations of the study………………………………………………………………………………………………….7 1.9 Conclusions …………………………………………………………………………………………………………………………8 ll fu oi m at nh z z k jm ht vb gm l.c Chapter two: Literature review……………………………………………………………………………………9 om 2.1 Introduction to the foreign exchange market……………………………………………………….10 2.1.1 Overview of establishment & development of forex market…………………….10 2.1.2 The Viet Nam foreign exchange market (VINAFOREX)……………….………….14 2.2 Exchange rate and risk management of exchange rate….….……….………….………18 2.2.1 Definition of exchange rate…………………………………… ………………………….….……19 2.2.2 Classification of exchange rate.……………………………………………… ……………… 19 2.3 Types of foreign exchange transactions…………………………………………………………….….21 2.3.1 Spot transaction…………………………………………………………………….…………………………….21 2.3.2 Forward transaction…………………………………………………………….……………………….……21 2.3.3 Swap transaction…………………………………………………………………….……………………….…21 n a Lu n va y te re ac th ng hi ep 2.3.4 Future transaction…………………………………………………………………….………………….……22 2.3.5 Option transaction……………………………………………………………………………………………….22 2.4 Risk management of exchange rate…………………….………………… …… …………………… 23 2.4.1 Definition of risk management of exchange rate…… ………………………….23 2.4.2 Factors influence risk management of exchange rate……………………… 24 2.4.3 Identification of exchange rate risk…….… …………………………………………………26 2.4.4 Exchange rate risk analysis and measurement of banks…………………….28 2.4.5 Risk management of exchange rate with Long or short position in net exposure………………………………………………………………………… ……………………………………………… 29 2.4.6 Risk management of exchange rate with Long or Short position in net total exposure…………………………….…………………………………………………………… …………… 30 2.4.7 Classification of risks associated with foreign exchange operation.33 2.5 Legal foundations for spot transaction and derivative transaction ……………34 2.6 Conclusions……… …………………………………………………………………………………………………………….35 w n lo ad ju y th yi pl n ua al n va ll fu Chapter three: Research Methodology…………………………… …………………………….…….36 oi m 3.1 Introduction……………………………………………………………………………………………………………………….37 3.2 Research design …………………………………………………………………………………………………………… 38 3.3 Data collection………………………………………………………………………………………………………………….41 3.3.1 Document Collection…………………………………………….………………………………………… 42 3.3.2 Personal Interviews………………………………………………….……………………………………… 43 3.4 Data analysis…………………………………………………………………………………………………………………… 46 3.5 Conclusions……………………………………………………………………………………………………………………….48 at nh z z k jm ht vb om l.c gm Chapter four: The current situation of risk management of exchange rate in foreign currency trading operation of commercial banking system in Ho Chi Minh city………………………………………………………………………… …………………………………… ……50 n a Lu 4.1 Overview of commercial banking system in HCMC…………………………………………51 4.2 Overall assessment of money market and banking operations in HCMC…53 4.3 Overview of Forex operations of commercial banking system in HCMC.56 4.3.1 Foreign currency trading operation………………………………….…………….……….62 4.3.2 Experience of risk management of exchange rate from Vietnam Bank for Agriculture and rural development’s transaction exposure…… ……… 64 4.3.3 Treasury organization and relation ship with other departments…66 4.3.4 Fluctuations of exchange rate USD/VND during year from 2007 to 2009……………………………………………………………………………………………………………………………………… ……71 n va y te re ac th ng hi ep 4.3.5 Factors affecting to risk management of exchange rate of commercial banking system in HCMC………………………………………………………………………….75 4.3.6 Current risk management of exchange rate of commercial banking system in HCMC…………………………………………………………………………………………………………………….76 4.4 The current application of derivative instruments for preventing exchange rate risk of commercial banking system in HCMC……………………………………………………80 4.4.1 Forward transactions……… …………………………………………………….……………………….80 4.4.1.1 The current application of forward contracts of commercial banking system in HCMC….…………………………………….………………………… ……………………………80 4.4.1.2 The current forward rate setting……………………………………………………………….82 4.4.1.3 Factors affecting to forward transactions of commercial banking system in HCMC………………….…………………………………………………………………………………………… 83 4.4.1.4 Conclusion…………….………………………………………………………….………………………………87 4.4.2 Currency option…………… ………………………………………….………………………… …………87 4.4.2.1 The current application of currency Option of commercial banking system in HCMC…………………………………………………………………………………… …………………………….87 4.4.2.2 Option premium………………………………………………………………………………………………88 4.4.2.3 Conclusion……………………………….……………………………………………………………………….90 4.5 The evaluation of outcome performance on risk management of exchange rate of commercial banking system in HCMC…………………………………………………………….90 4.5.1 Achievements………………………………………………………………………………………………………90 4.5.2 Shortcomings….……………………………………………………………………………………………………92 4.5.2.1 Shortcomings from SBV’s forex management policy………………………92 4.5.2.2 Shortcomings from commercial banking system in HCMC……………93 4.5.3 Causes…………….………………………………………………………………………………………………………96 4.5.3.1 From forex management policy of SBV……………….…………… ….………….96 - No flexibility of exchange rate policy of SBV………………………………….………… 97 - Objects participating interbank forex market is limited and less efficient intervention made by SBV ……………………………………………………………………………………… …… 98 - Situation of high inflation and trade deficit ………………………………… …………… 98 - Unsuitable regulation of forward rate setting… ……………………………………….98 - Lack of legal framework guiding for forward and option transactions 98 4.5.3.2 From commercial banking system in HCMC….….………………………………99 - Most of local commercial banks have not developed self-forex trading yet and rarely use derivative instruments for hedging risk of exchange rate 99 w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re ac th ng hi ep - Possibility of increasing legal capital of commercial banking system in HCMC is limited…………………………………………………………………………………………………………….………99 - In charge of combined responsibilities lead to lack of supervising and checking trading limits, loss limit and forex report to SBV ……………………………….10 - Depending on option premium of foreign banks……….……………………………101 4.5.4 Conclusions….………………………….…………………………………………………………………….….101 w n lo ad Chapter five: Recommendations and Conclusions……………………………………………103 ju y th 5.1 Introduction…………….………………………………………………………………………………………………….….104 5.2 Recommendations for improvement of risk management of exchange rate of commercial banking system in HCMC……… ……………………………………………………… 104 5.2.1 Suggestions for State bank of Viet Nam……………………………………………………104 5.2.1.1 Improvement of spot market……………………………………………….……………… 104 5.2.1.2 Strengthening regulation on forex position……………………………………….105 5.2.1.3 Adjusting regulation to forward rate setting………………………………………106 5.2.1.4 Establishment of option interbank market ……………………………………….107 5.2.2 Recommendations for commercial banking system in HCMC………….107 5.2.2.1 Building business strategies and customer policy.………………………….107 5.2.2.2 Standardizing structure and process of operational Treasury…….108 5.2.2.3 Improvement of modern equipments and information technologies for treasury operation……………… …………………………………… …………………….…………………………109 5.2.2.4 Enhancing for training banking staffs to improve ability of analyzing and forecasting fluctuations of exchange rate in forex operation…109 5.2.2.5 Diversifying types of foreign currencies in the international trade………………………………………………………………………………………………………………………………………… 109 5.2.2.6 Strengthening the application of derivative instruments for hedging risk of exchange rate…………………………………………………………………………………………110 5.3 Conclusions related to research questions………………………………………………………….110 5.4 Implication for further study…………………………………………………………………………………….112 yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re ac th References ………………………………… viii Appendices ix Survey results… ……………………………………………………………………………………………………………………… x ABSTRACT ng hi ep Viet Nam has emerged as a rapidly growing economy in the last few w years with the average growth rate of over 7% per year in which the banking n lo system has developed strongly and efficiently and play a crucial role as ad ju y th connection between domestic and international financial market However yi with internal economic difficulties caused by high inflation, trade deficit and pl ua al issues of government policy and unfavorable changes in the world economy, n the banks, especially small and medium banks, have found obstacles on the va n way to develop due to lack of management experience and approaching new fu ll information technologies in banking field The thesis examines a case study of m oi Commercial Banking System in Ho Chi Minh City to see the way they manage nh at their risk of exchange rate and how strong financial instruments are used to z z ht vb prevent risk of exchange rate jm Objectives of the thesis are (1) to gain an understanding of risk k management of exchange rate in theory; (2) to approach the recent method of gm l.c risk management of exchange rate in foreign currency trading operation of om commercial banking system in HCMC and the real application of derivative a Lu instruments for preventing risk of exchange rate of commercial banking n n va system in HCMC from 2007 to 2009; (3) to figure out practical issues to be ac th management of exchange rate of commercial banking system in HCMC y operation; (4) to suggest some recommendations for improving risk te re solved in risk management of exchange rate in foreign currency trading In term of structure, the thesis has five chapters and begins by defining ng hi the research problem which can be clarified by research questions and ep research objectives By using survey method in combination with sources of w secondary data of commercial banking system in HCMC for 2007 to 2009, the n lo research problems of risk management of exchange rate in foreign currency ad ju y th trading operation of commercial banking system in HCMC have been yi explored and highlighted by pointing out factors affecting to the current pl ua al method of risk management of exchange rate of CBS-HCMC Some practical n issues of risk management of exchange rate of commercial banking system in va n HCMC are pointed out in which achievements, shortcomings and causes are fu ll investigated in order to raise some recommendations for improvement of risk m oi management of exchange rate in foreign currency trading operations of nh at commercial banking system in HCMC in particular z z The research study focus on risk management of exchange rate in foreign vb jm ht currency trading operation of commercial banking system in HCMC by k controlling forex position and using solutions for preventing risk of exchange gm rate on many types of forex transactions which include spot, forward, swap l.c om and option transactions Based on literature review, recent foreign exchange a Lu regulations issued by State bank of Viet Nam and current situation of risk n management of exchange rate of CBS-HCMC, the research study hope for n va ac th long run y banking system in HCMC as well as practical forex market of Viet Nam in te re contributing some general and specific recommendations for commercial THESIS RESULTS AND NEW POINTS ng hi ep 1/ The thesis provided interesting assessments on Vinaforex and forex trading markets among commercial banking system in Ho Chi Minh city w n 2/ The thesis looked at one of heatly-debated topics with a different focus on lo ad the risk originated from the forex trading operation and the ways of y th management of such risk ju yi 3/ The study target is meaningful, both academically and practically pl ua al 4/ The thesis has covered a wide range of outstanding practical issues in the n area of foreign exchange risk and risk management in Viet Nam va 5/ The thesis adds at least 02 importance contributions to the literature as n ll fu follows: oi m - The thesis has reflected a number of perceptions on foreign exchange risk at nh and risk management from senior level of related authorities and bankers z - The thesis has furnished evidence of the importance of the management of z ht vb foreign exchange risk (Bank for agriculture and rural development of Viet jm Nam; Bank for foreign trade of Viet Nam’s experiences) k 6/ The thesis also focus on the application of derivative instruments for gm hedging risk of exchange rate in forex trading by adjusting regulations to om l.c forward rate setting a Lu The new points of forward rate setting as suggested are as follows: n + Based on interest rates of deposit and loan of commercial banks, va forward rate are consistent with real condition of market and narrow the n ac th commercial banks comfortable to deal with customers and check it again y + Buying and selling forward rate are defined specifically making te re difference between forward rate and spot rate at the same duration ng hi ep w n CERTIFICATE lo ad y th ju I, Ngo Tran Kien Quoc, assure that all contents and figures in this yi research due to my study, survey and performance pl n ua al n va ll fu m oi Ngo Tran Kien Quoc at nh z z k jm ht vb om l.c gm n a Lu n va y te re ac th REFERENCES ng hi ep Documents, Reports and Websites w Website reference: n lo ad - Website of Ministry of Finance: http://www.mof.gov.vn ju y th - Website of State bank of Viet Nam: http://www.sbv.gov.vn yi - Website of Asia Joint stock commercial bank: http//www.acb.com.vn pl ua al Periodical reports: n - General reports of SBV-HCMC branch for year 2007, 2008 and 2009 va n - Reports of forex management of SBV-HCMC branch for year 2007, ll fu oi m 2008 and 2009 nh - Forex reports of ACB, VCB-HCMC, Sacombank, Viet A bank, at Southernbank, HDB, UOB and VID Public bank z z - Annual reports of SBV for year 2007, 2008 and 2009 jm ht vb Documents: k - Programs-Targets and itinerary of banking service development for l.c gm periods from 2006 to 2010 om - Strategy of Banking service development for periods from 2010 to 2020 a Lu - Balance sheets of commercial banking system for year 2007 - 2009 n y ac th Nguyen Dan Don; Vice Prof Dr Tran Huy Hoang; Ms Nguyen Quoc Anh; te re - International payment – Dr Tram Thi Xuan Huong; Vice Prof Dr n va Vietnamese materials: Lecturer Nguyen Thanh Phong – University of economics Ho Chi Minh City ng – Labour & Society publisher in 2008 hi ep - Foreign exchange market and solutions for hedging riks - Dr Nguyen Minh Kieu – Lecturer University of economics Ho Chi Minh City and w n Fulbright program - Statistical publisher in 2008 lo ad - Improvement of solutions for hedging exchange risk to prepare for y th integration of regions and world - Dr Nguyen Minh Kieu – Lecturer ju yi University of economics Ho Chi Minh City and science and technology pl ua al department - scientific study in 2006 n - Foreign exchange management in Viet Nam – Dr Le Quoc Lich - va Statistical publisher in 2004 n ll fu Magazines: oi m - Methods to determine the exchange rate risk of commercial banks – Ms z 2010 at nh Dinh Thi Thanh Long and Ms Phan Tien Nam – Banking review of June, z jm Thu Thao – Banking review of April, 2010 ht vb - Risk management of exchange rate of commercial banks – Nguyen Thi k - The use of Option – Master Dao Gia Hung – Banking review of August, gm 2008 l.c om - Some of renovation of exchange rate management in Viet Nam – Dr Le n Foreign documents: a Lu Phan Dieu Thao – Banking & Technology review of October, 2009 va - Options, Futures and other Derivatives – John C.Hull & Maple Financial n Derivatives and Risk Managers; Director, Bonham ac th Toronto – Sixth edition by Perrson Prentice hall y Center for Finance; Joseph L Rotman School of Management University of te re Group Professor of - Risk management by Mr Guy Mertens – Financial technology Transfer ng Agency – January, 2010 hi ep - Yin R K (2003) Case study research Sage Publications, Third Edition w Zikmund, W G (1997) Business Research Methodology Fort Worth, n lo TX: TheDryden Press ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re ac th ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m SURVEY RESULTS at nh z z k jm ht vb om l.c gm n a Lu n va y te re ac th SURVEY RESULTS ng hi Some issues of risk management of exchange rate in fore trading of commercial banking system in Ho Chi Minh City ep w I Survey targets: n lo - To collect specific contents to confirm that the analysis and evaluations of the ad study are objective and reality y th ju - To survey recommendations to convince whether the research study base on yi both literature review and reality to apply or not pl ua al II Survey objectives: n Survey contents referring ideas from those people: va n - Leaders of State bank of Viet Nam-HCMC branch fu ll - CEO, Managers of Treasury of commercial banks in HCMC m oi - Lecturers of banking university and economic university of HCMC nh III Research Method: at z - To bring out an overall assessment of the current situations of risk z ht vb management of exchange rate as well as several specific issues to be solved for k of commercial banks in HCMC jm improving risk management of exchange rate based on characteristics and types gm - In each survey questionnaires, interviewees can choose one or multiple l.c om choices based on his/her appreciation or raise personal opinions related to a Lu concerned problems n IV Results of survey: va n What you think about the current situation of foreign exchange te re operation of CBS- HCMC? y 15% ac Unbalanced demand and supply of foreign currency Result (%) th Content Profit from foreign exchange operation still gains low 5% ng hi ratio compared with profit of credit operation ep Spot transactions accounts for more than 90% of total 5% fore turnover to primarily meet the requirements of w n lo customers’ international payment ad Derivative transactions are less in use but mainly arise in 3% y th ju foreign bank branches 2% yi Most of local banks have not developed self-fore trading pl ua n va 87 Other issues 70% n All of them al yet ll fu oi m Why commercial banks have to conduct risk management of Result (%) z Content at nh exchange rate? z 11% unexpected damages in foreign exchange operation jm ht vb To protect commercial banks from serious losses or k To prepare for disadvantageous changes of exchange rate 4% va n business opportunities 70% ac th All of them y 5% te re To strengthen the competitive advantage Other issues n To reduce the risk of exchange rate and catch the a Lu foreign exchange operation 7% om To regulate the sensitive market movements towards l.c gm towards foreign exchange operations of CBS-HCMC 3% What are the factors affecting risk management of exchange rate in FX ng hi trading of CBS-HCMC? ep Result (%) Supply and demand of foreign currency, especially USD 30% Content w n lo ad in the foreign exchange market 4% y th Market sentiment (activities of USD cash market, ju speculation, sentimental state of investors) yi 11% pl Macro and micro economic (CPI, GDP, interest rate) al 10% 45% n va All of them n ua SBV’ s monetary management policy fu ll How can commercial banks identify, measure and control damages or oi m losses of exchange rate ? nh at 4.1 How to measure risk of exchange rate on FX trading of CBS in HCMC z 10% z Account balance of buying and selling spot and forward vb from both enterprises and interbank market k jm ht turnover in balance sheet at the ending day of the month sources of foreign currency in balance sheet (FDI, FII and 8% Account balance of commitment of buying and selling 12% n a Lu oversea remittances) om l.c gm Account balance of buying and selling from other n va spot and forward transactions off balance sheet at the 60% ac 4.2 How to identify risk of exchange rate on FX trading of CBS in HCMC th Other issues y All of them: te re ending day of the month ng hi Content Result (%) All open positions are marked-to-market against 30% ep determined closing rate by supporting system to realize w profit or loss at the end of day n 4% lo Long or short positions are exceeded over +/-30% of ad y th bank’s own legal capital ju Dealers’ trading limits should not exceed the assigned yi pl trading desk limits as approved by ALCO 11% ua al There are excesses of stop loss limit and V.A.R n monitored by treasury settlement belonging to back office va 10% n Dealers can only transact in products that have been fu ll approved by ALCO and within the parameters stated for m oi their trading limits nh 45% at All of them z z Result (%) jm Content ht vb 4.3 How to hedge risk of exchange rate on FX trading of CBS in HCMC k Basically squaring open position by buying or selling Other issues: Bank managers’ behaviors towards risk of 2% ac th 30% y te re exchange rate (Who are risk averse, neutral or risk prefer) All of them n 10% va Keeping open position to caught opportunities n a Lu preventing risk of exchange rate 8% om Buying or selling forward or option transactions for l.c gm spot transactions through interbank market or enterprises 50% What are achievements as well as strong points of the current method of ng hi risk management of exchange rate of CBS-HCMC? ep Result (%) 13% 7% w To mitigate the risk of exchange rate in FX trading n Content lo To create a considerable forex profit for banking ad y th activities 5% ju To combine between forex products and other banking yi pl products in hedging risk of exchange rate 6% ua al To exchange more management experiences between n commercial banks on identification, measurement and va n control of exchange rate risk fu 69% ll Using derivative instruments for hedging risk of m oi exchange rate creates more channels for CBS in HCM to nh at buy or sell foreign currency in FX trading and more z solutions to protect commercial banks from serious z vb damages or losses ht k jm All of them gm What are shortcomings as well as weak points of risk management of om l.c exchange rate of CBS-HCMC? n a Lu 6.1 From SBV’s opinions The official exchange rate between USD and VND has 5% n Result (%) va Content y th ac SBV daily The Interbank foreign exchange market working less te re not reflected the real value of VND and under direction of 10% efficient, commercial bank find difficult to balance supply ng hi and demand of foreign currency for their FX trading ep Activities of USD cash market and situation of economic 4% Dollarization affecting sentiment state of holding USD w n lo Unsuitable regulation of setting forward rate due to the 10%% ad choosing basic interest rates of VND and USD that are not y th ju consistent with real interest rate of commercial banks 5% yi Not enough legal framework guiding for forward and pl ua al option transactions 66% n All of them n va Other issues ll fu oi m 6.2 From commercial banks’ opinions 12% z risk management on treasury operation at nh Not enough qualified banking staffs and experiences of z equipments Information Forward transactions are considered as a channel for n a Lu companies to make up for the lack of supply of foreign 10% om CBS-HCMC to buy foreign currency from export 7% l.c gm Unbalanced supply and demand of foreign currency k technologies for treasury operation and jm modern ht improving 5% vb Lack of source of foreign capital in FX trading and va currency more than for hedging risk of exchange rate n 2% All of them ac speculation th Most of commercial banks have no self-trading as y 4% te re Unreasonable option premium 60% What are the main reasons that cause the failure in risk management of ng hi exchange rate in foreign currency trading operation of CBS-HCMC that ep you experienced? w 7.1 Causes from forex management policy of SBV n lo 10% ad SBV’s daily official exchange rate bases on turnover of y th Interbank foreign exchange market which only make up ju about 20% of total forex turnover yi pl The exchange rate policy of SBV is still suffered from al va value of VND n ua intervention made by SBV and does not reflect the real 5% n The Interbank foreign exchange market is working less fu ll efficient oi m Activities of trading USD cash in the black market 7% nh Unsuitable regulation of forward rate setting based on at 5% z z the basic interest rate of VND issued by SBV and USD vb rate of commercial banks k jm ht issued by FED which are not consistent with real interest gm Not enough legal framework guiding for forward and om l.c option transactions 10% All of them 55% a Lu Other issues n va n 7.2 Causes from commercial banks in HCMC risk management of exchange rate in operational treasury ac 8% th Not enough qualified banking staffs and experiences on y Result (%) te re Content Shortage of modern equipments and information ng hi technologies for analyzing and estimating 7% market ep movements Weakness in risk management of exchange rate 15% w n lo - Not separating management responsibilities between ad supervising and checking transactions as well as specific y th task between treasury manager and chief of forex trading ju yi and fund management pl ua al - Exceeding the regulation of forex position (30%/total own n capital of commercial bank) va - Violating reporting regulation on forex position to SBV n ll fu - Not stipulated specific trading limits and stop loss limits oi m on international interbank market at nh - Less using derivative instruments for hedging risk of z exchange rate z 5% ht vb Unreasonable option premium 65% jm All of them k Other issues gm risk management of exchange rate? a Lu Content om l.c What are general and specific solutions for CBS-HCMC for improving Result (%) n Standardizing structure of operational Treasury: 15% n 5% va Building business strategies and customer targets ac th - Revaluation of positions: All open position belonging to y office and Back office te re - Separating the specific tasks from Front office, Middle the FX trading are marked-to-market against determined ng hi closing rates ep - Setting Trading limits and Stop loss limits - Transacting in authorized products w n 8% lo Modern equipments and information technologies for ad analyzing and estimating market movements y th yi operation 5% ju Training banking staffs qualified for foreign exchange pl n ua Other issues: 67% al All of them n va ll fu What are the recommendations for improving forex regulations of SBV Result (%) oi m Content 15% at nh Improvement of interbank foreign exchange market by: z - Expanding object participating in interbank forex market z vb including commercial banks and non bank credit institution k by SBV jm ht - Decreasing step by step administration intervention made gm - Improving SBV’ ability of forecasting fluctuations of 7% n a Lu expanding forex position ratio more than +/-30% om Strengthening regulation on forex position and l.c exchange rate and analyzing market trends 10% n va Adjusting regulation to forward rate setting based on 63% Other issues ac All of them th 5% y Establishment of option interbank market te re interest rate of deposit and loan of commercial banks V Evaluation of survey results: ng 1- Every different opinions chosen have represented specific contents in hi ep conformity with foreign exchange operation of each commercial banks in HCMC w n 2- Most ideas of banking experts agreed 100% about questionnaires arising lo ad from the current situation of risk management of exchange rate in FX trading, y th advantages or disadvantages of recent methods of risk management of exchange ju yi rate, how to identify, measure and control risk of exchange rate Last but not pl ua al least, recommendations suggested for SBV and CBS in HCMC for improving n risk management of exchange rate However, a number of specific contents is va most unanimous as follows: n ll fu + Forex management policy of SBV still have a lot of shortcomings such oi m as interventions made by SBV to daily spot rate, method of setting forward rate, at nh legal frame work guiding CBS in HCMC to conduct derivative instruments for z hedging risk of exchange rate, the Interbank foreign exchange market working z ht vb less efficient so that commercial bank find difficult to balance supply and jm demand of foreign currency for their FX trading: 75% - 85% k + Main factors like supply and demand of USD, Marco and micro gm economy (CPI, Interest rate, GDP), Market sentiment (activities of USD cash l.c a Lu rate of CBS in HCMC : 70% om market, sentimental state of investors) influence risk management of exchange n + Problems involved in non-qualified staffs, modern equipments and n va information technology: 50% ac th 50% y and responsibilities between front office, middle office and back office : 40% - te re + Treasury operational process are not standardized and separated tasks RESEARCH PROCESS ng Literature Review hi ep w n lo First draft of questionnaires (purpose & technique) ad Theoretical issues of risk management of exchange rate ju y th yi pl Knowledgeable individuals n ua al n va Final draft of questionnaire ll fu oi m Factors affecting risk management of exchange rate Criterions for accessing the quality of risk management of exchange rate at nh z z vb Survey by questionnaires k jm ht Historical data analysis om l.c gm Data Processing n a Lu n va y te re Knowledgeable individuals ac th Research Report
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