Enhancing the effectiveness of foreign exchange transactions the case of vbard,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY FOREIGN LANGUAGE FACULTY GRADUATION THESIS Title: ENHANCING THE EFFECTIVENESS OF FOREIGN EXCHANGE TRANSACTIONS: THE CASE OF VBARD Supervisor Phạm Thị Hoàng Anh (PhD) Student Võ Lê Phương Class ATCB-K12 Hanoi, May 2013 Graduation thesis Banking Academy ACKNOWLEDGEMENT In completing this thesis, I have received great help and support from many people I would like to show my sincere gratitude to all of them First of all, I myself would like to send many thanks to PhD Pham Thi Hoang Anh, who has spent her precious time to correct and give insightful comments to my work In my internship, I am especially in debt to all the instruction and encouragement from Mrs Doan Thi Thanh Huong, Deputy Director of Agribank Operation Center as well as Mr Vu Gia Hung, Manager of Foreign exchange trading office It was in fact without the valuable help of all employees in the foreign exchange office, I could not have completed this research From the bottom of my heart, I would like to wish them all the best Last but not least, I am extremely grateful to obtain the kindness and support from my family, all the teachers in Foreign language faculty and friends, who always beside me and encourage me I hope that all of them will achieve good health and success for the whole life Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy TABLE OF CONTENTS LIST OF TABLES AND GRAPHS LIST OF ABBREVIATIONS INTRODUCTION Chapter I: THEORETICAL FRAMEWORK OF FOREIGN EXCHANGE TRANSACTIONS AT COMMERCIAL BANKS 1.1 Overview of foreign exchange market 1.1.1 Definition, characteristics and functions 1.1.2 Participants of the market .10 1.2 Foreign exchange transactions at commercial banks 12 1.2.1 Organization of foreign exchange transactions 12 1.2.2 Foreign exchange transactions .13 1.3 Effectiveness of foreign exchange transactions 16 1.3.1 Turnover of foreign exchange transaction 17 1.3.2 Profit of foreign exchange transaction 18 1.3.3 Risk in foreign exchange transaction 19 Chapter II: FOREIGN EXCHANGE TRANSACTIONS: THE CASE OF VBARD 21 2.1 Organizational structure .21 2.1.1 Overview of VBARD and Agribank Operation Center 21 2.1.2 Foreign exchange functional offices .22 2.2 Legal framework 23 2.2.1 Regulatory documents from the Government and State bank .23 2.2.2 Regulatory documents from VBARD 23 2.3 Effectiveness of foreign exchange transactions at VBARD 24 2.3.1 Foreign exchange transaction process 24 2.3.2 Types of transactions 26 2.3.3 Turnover 28 2.3.4 Profit .30 2.3.5 Risks 32 2.4 Evaluation 36 2.4.1 Achievements .36 Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy 2.4.2 Limitations 39 2.4.3 Reasons for limitations 41 Chapter III: SOLUTIONS TO ENHANCE THE EFFECTIVENESS OF FOREIGN EXCHANGE TRANSACTIONS AT VBARD .44 3.1 Solutions to the operation center 44 3.1.1 Improve the technology 44 3.1.2 Enhance risk management scheme 44 3.1.3 Create a forecasting mechanism 44 3.1.4 Specify the target and strategy periodically 45 3.2 Solutions to VBARD 45 3.2.1 Improve quality of service .45 3.2.2 Enhance staff quality 46 3.2.3 Tighten transaction management 47 3.2.4 Create effective customer policy 47 CONCLUSION .49 REFERENCES .50 Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy LIST OF TABLES AND GRAPHS List of tables Table Foreign exchange transaction turnovers 2010-2012 p27 Table p32 Breakdown components in USD denominated turnover of AOC 2011-2012 Table Report on forex transactions through RTFX: Jan-31 Aug p34 2012 List of graphs Graph Organizational structure of Agribank Operation Center p20 Graph p25 Percentages of foreign exchange operations at AOC in 2012 Graph Foreign exchange transactions ratio in 2012 at AOC p26 Graph Currencies in trading p28 Graph Foreign exchange trading gross profit of some banks in the p29 2009-2012 period Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy LIST OF ABBREVIATIONS AOC Agribank Operation Center AUD Australia dollar BIDV JSC Bank for Investment and Development of Vietnam CAD Canada dollar CNY Chinese yuan EUR Euro Forex, FX Foreign exchange GBP Great Britain Pound HKD Hong Kong dollar IPCAS Intra Payment and Customer Accounting System ISO International Standards Organization JPY Japanese Yen LAK Laos kip NZD New Zealand dollar RTFX Reuters Foreign exchange trading software SGD Singapore dollar SWIFT Society for worldwide interbank finance telecom USD United State of America Dollar VBARD (Agribank) Vietnam Bank for Agriculture and Rural Development Vietcombank JSC Bank for Foreign Trade of Vietnam VND Vietnam dong Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy INTRODUCTION Rationale The 21st century has witnessed the booming development of the international economy under the effects of globalization It is irreversible trend that any business organizations have to deal with the fierce competitiveness from competitors around the world Manufacturers, for example, employ modern equipment to enhance the quality or find new sources of income In banking sectors, the similar pattern is applied Commercial banks are now diversifying their services to attract customers, not just rely on credit activities Among various banking services, export-import financing is emerging to be a highly developed one, including foreign exchange transactions In Vietnam, the export – oriented policy has been implementing for many years, leading to the huge demand of international settlements and foreign exchange transactions State – owned commercial banks are the first credit institutions to provide and develop these transactions Vietnam Bank for Agriculture and Rural Development, the largest stateowned commercial bank in both financial source and scale, is also in the process of improving its quality and effectiveness in foreign exchange With lessons from the past, foreign exchange transactions at VBARD have achieved positive remarks Since VBARD is not the best domestic commercial bank in dealing foreign exchange, I am curious about the current effectiveness of the transactions there as well as the way the bank applied to improve its services In addition, this topic so far has not been exploited adequately and thoroughly by researchers; thus I have decided to write about foreign exchange transaction’s effectiveness of VBARD Objectives The aims of my graduation thesis are to:  Review the theoretical framework in foreign exchange transaction effectiveness of commercial banks Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy  Analyze and evaluate the foreign exchange operation of VBARD from 2009 to 2012 so as to clarify the achievements and limitations  Suggest solutions for the bank to cope with the underlying limitations Scope This thesis focuses on the fundamental issues of foreign exchange transactions and real situation of Vietnam Bank for Agriculture and Rural Development Operation Center for the period 2009-2012 Research questions The content of this thesis is in focus of the answers to these questions:  What are the criteria to examine the effectiveness in foreign exchange transaction of commercial banks?  How foreign exchange transaction in VBARD process?  What are its achievements and limitations?  What can be done to enhance the effectiveness of VBARD foreign exchange transaction? Methodology This thesis is employed with qualitative method in order to evaluate the effectiveness of foreign exchange transactions at VBARD The primary source of information is the periodical reports of VBARD, and other credit institutions together with some related documents from the operation center Structure The thesis is structured as follow: Chapter I: Theoretical framework of foreign exchange transactions at commercial banks Chapter II: Foreign exchange transactions: the case of VBARD Chapter III: Solutions to enhance the effectiveness in foreign exchange transactions at VBARD Võ Lê Phương ATCB –K12 Graduation thesis Banking Academy Chapter I: THEORETICAL FRAMEWORK OF FOREIGN EXCHANGE TRANSACTIONS AT COMMERCIAL BANKS 1.1 Overview of foreign exchange market 1.1.1 Definition, characteristics and functions Like other types of market which are a place to exchange goods or services for money or in-need products and services, foreign exchange market is also a place to buy and sell currency for currencies of different countries In general meaning, the international foreign exchange market is the place for market makers, dealers and any organizations or individuals from around the world to purchase or sale foreign currencies This market can be anywhere in which foreign exchange transactions happen; but in reality it is commonly understood as the foreign exchange interbank market since about 85% of the turnover is done through interbank transactions Unlike different types of market, foreign exchange market has some distinctive characteristics, including:  The actual market does not have a visible location but anywhere the exchange for currencies is executed; therefore, it is geographical dispersion  The market works non-stop with the difference of time zone The international forex market runs 24/5 from Monday to Friday and trading sections each day  The core of forex market is the interbank market which is created by commercial banks, foreign exchange brokers and central banks  Participants of the market business through telephone, telex, fax and satellite communication network, so that the information is transmitted quickly and effectively  Thanks to the globalization of market, information symmetry, huge trading volume, high technology and homogenous goods, the transaction costs are low and can be considered as perfect market  The USD accounts for around 41.5% of currencies traded which is 83% of total transactions Võ Lê Phương ATCB –K12 10 Graduation thesis Banking Academy  The forex market is very sensitive to the political, economic, social events, psychology and especially monetary and fiscal policies  It is the most perfect and most liquid market with the turnover of almost $4 trillion daily at global scale The basic function of foreign exchange market is to serve the need of international settlements When a company imports goods, it will need foreign currency to make payment whereas, when a company exports goods, they need to exchange the foreign currency domestic one The commercial banks will buy or sell foreign currencies in the interbank market to supply the demand from their customers In addition, the forex market also facilitates the international capital movements Through demand and supply forces in the market, the exchange rates can be determined The central banks from around the world use this place to directly intervene in exchange rates through buying and selling foreign exchange Finally, the forex market provides trading environment and hedging instruments such as spot, forward, swaps, futures and options contracts 1.1.2 Participants of the market There are four main members of the forex market a Retail clients Retail clients are also known as banks’ customers who are domestic and multinational companies, investors and other entities who deal in currencies Their aims are to exchange currencies for the need of payments, investments and to hedge foreign exchange risks In fact, the retail clients cannot exchange currencies themselves because of mismatching in time, place, currencies and volumes as well as high risks; therefore, they all come to commercial banks to transact The retail clients’ demand is the main source of transaction demand in the forex market b Commercial banks Commercial banks join the foreign exchange market with two aims: first is to serve their customers and second is to trade for their own profits When the commercial banks buy or sell foreign currencies for customers they not need much capital, the exchange rate Võ Lê Phương ATCB –K12 36 Graduation thesis Banking Academy deals with branch, the rate offered was JPY/VND = 268.24 and bid rate was 264.15 The gain from two transactions with branch was: = 10,000,000 x (268.24 – 264.15) = 10,000,000 x 4.09 = 40,900,000 VND Therefore, in this case AOC had received a loss 2.4 Evaluation 2.4.1 Achievements Even though VBARD is not the foreign exchange trading specialized commercial bank and the Operation Center only came to work for less than 10 years, the forex transaction here has gained considerable achievements First, the Agribank Operation Center has accomplished the target of meeting the demand from branches promptly and adequately With NOSTRO accounts at many correspondent banks and foreign currency denominated accounts of the bank, the office finds no difficulty in satisfying the need to buy and sell USD The transaction with branches takes only one hour to be completed in the center; therefore, in one day, one branch can deal several times with the center forex trading office In addition, the exchange rates and fees quoted in the center are very competitive with aim to generate profits for branches when transact with customers Second, in order to achieve the planned turnover, AOC has maintained and broadened relationship with customers and partners Along with tradition corporate clients, in 2012, the center still manages to set connections to new customers Moreover, with the policy of offering competitive price (especially in comparison to Vietcombank), the bank also succeeds in attracting foreign currencies from individual customers In terms of trading partners in the interbank market, AOC is now transacting with 20 Vietnamese commercial banks and 41 foreign commercial banks including ANZ, BNP Paribas, Citibank, Deutsche Bank, JPMorgan Chase, HSBC and Standard Chartered Third, in 2012, VBARD has made a remarkable achievement in widening the foreign exchange dealing service market share In the domestic market, the first position is Võ Lê Phương ATCB –K12 37 Graduation thesis Banking Academy Vietcombank with 16-17%, following by Vietinbank and BIDV with 8-8.5% and 8-8.2% respectively Agribank had always stood at the ninth or tenth position, but last year it reached the all-time highest of fifth or sixth position with 4-4.2% of foreign exchange trading market This is the proof of a sustainable development in the service of VBARD, affirming the ability of the bank in this banking service, stimulating the performance of the whole system and of the office in particular Fourth, the operation of foreign exchange office also facilitates the operation of other banking services The majority of foreign exchange transactions supply the international settlement operation Thus, when the amount of foreign currency needed is satisfied promptly and accurately, the efficiency of international settlement is also raised Additionally, the effectiveness of providing foreign currencies denominated loans depends on the performance of the forex dealing office The foreign exchange dealing transaction can also benefit the remittance service Thanks to the tight account balance and currency position management of the functional offices in AOC, all transactions related to foreign exchange in the whole system can run smoothly and effectively Fifth, Agribank Operation Center is doing its best in heightening the staff quality through periodically training programs With the policy of attracting high qualification employees, the current personnel working at the foreign exchange dealing office are young yet skillful at their task Many of them have obtained master degree and years of experience Besides, the transfer of staff from other functional offices creates a more dynamic working environment As well as that, all of them have gained adequately knowledge in ISO, so as to apply a more professional style on the job These achievements are the results from some following reasons: - Good financial resources and wide branch system VBARD is the largest Vietnamese bank and also the state-owned bank; therefore, the source of funds available for every operation is always ready Particularly, the amount Võ Lê Phương ATCB –K12 38 Graduation thesis Banking Academy allowed by the bank’s board of directors to use in foreign exchange is 30% of capital which is also a huge number This is especially suitable for foreign exchange operations Furthermore, that VBARD is the bank with the largest scale and most transaction office in Vietnam helps the bank to reach a huge number of customers The developing economy along with policies for international commerce results in the increasing potential customers for the foreign exchange services Additionally, the policy of attracting foreign exchange from the public is very successful in the case of Agribank, contributing to the source of currency inflows - Modern technology with standardized payment system Being the first commercial bank in the country to complete the installment of interior payment system for the whole system, VBARD has better chance in well-managing the payment and cash flows inside the system among branches and operation center Moreover, IPCAS helps the center and branches to double check the transaction, correct the mistakes yet reducing paper work and saving time In foreign exchange trading with other credit institutions, Agribank Operation Center is using different softwares and platforms to serve specific demands Those services provided by Thomson Reuters have played a great role not only in exchange rate managing mechanism but also in dealing with more reliable partners in the market Today, the center still continuously improves the efficiency of softwares as well as allies with providers to heighten the standard of services - Accurate regulation from the board of managers During recently years, the turnover of foreign exchange transactions and other services at the center was on the increase; this result could not happen without the rational decisions from the managers For example, the policy of quoting good exchange rates for branches to earn profit, the policy of offering competitive price to attract fund from public and the policy of focusing on serving exporting companies in international settlement all Võ Lê Phương ATCB –K12 39 Graduation thesis Banking Academy achieved good results Accurate policies will not only lead to good returns but also a better reputation to the brand name - Regular training courses for staff Training high quality staff is one of priorities of Agribank operation center for many years With this aim, the whole system as well as the center has organized many courses for staff For instance, in 2011 there were 10 classes of transaction skills for the whole system, classes for managers in foreign exchange dealing of branches and 10 training programs for new employees Apart from training programs in specialty, staff also participated in soft skills class to sharpen working skills and raise efficiency The office also conduct working efficiency marking on individual employees to encourage the responsibility of them as well as to evaluate the employee for quarterly and yearly awards 2.4.2 Limitations Despite many favorable conditions to be the leading commercial bank in foreign exchange trading, the bank faces a number of limitations and problems First, branches and the Agribank operation center still not exploit all kinds of foreign exchange operations in trading to serve customers, hedge the risk and earn profit Almost all transactions of VBARD are overnight or spot Forward and swap contracts are rarely used in transactions with branches and only used sometimes to avoid the shortage in currency in interbank transactions Since the demand from branch is normally for short time only, the term for each contract is relatively short; explaining the majority of spot operation Moreover, the dealers when transact directly with customers not usually make suggestion and give advice on how to obtain the needed amount in the most favorable and safe way Since not many different types of derivative transactions are processed, it is inflexible for the bank to hedge the risk Due to the lack of information, skills and experience, derivatives to protect buyers from exchange rate fluctuation like Võ Lê Phương ATCB –K12 40 Graduation thesis Banking Academy currency option and currency future have not been in adequate condition to be in practice in spite of the availability of regulating documents Second, the efficiency in interbank transactions is not high This is proved by the percentage of completed deals among the total of placed deals Deprived from table 3, the proportion of completed deals was slightly more than 50% Moreover, among the completed deals there were a noticeable number of deals generating loss to the center Even though the majority of loss-generated transactions were within allowed limit, the problem still needs more attention from managers Third, reaching to the widest area of customers, the number of currencies in trading of VBARD should have been more diverse The main currencies in transactions are USD, EUR, JPY, and GBP in which USD accounts for almost 80% while other currencies available occupy a very small proportion Fourth, the growth rate of VBARD as a whole and the operation center in particular is unstable and extremely vulnerable to adverse movements from the economy Fifth, the fact that there are still some unsynchronized regulation and management from branches to operation center causes some problems in the transaction process For example, the exchange rates to exercise one transaction are different in the branch and in the center; thus making it difficult in calculation Since the exchange rate quoted for branches’ operation is very good in compare to real exchange rate, the center can sometimes suffer from the loss Moreover, demands from branches are occasionally irrational and inaccurate, causing troubles in the center Sixth, the reporting process in the system of VBARD is still unsystematic Foreign exchange dealing is a sensitive activity that required close management not only from the commercial bank but also from the State bank; therefore, every transaction needs to be recorded and the office has to write a report daily At Agribank operation center, the forex trading office is the head of all transactions and responsible for reporting to State bank In order to that, reports from branches should be sent early so that the office can Võ Lê Phương ATCB –K12 41 Graduation thesis Banking Academy compile the report on the whole system on time However, branches usually send in late and sometimes there are mistakes; causing troubles for employees at AOC 2.4.3 Reasons for limitations The reasons for these limitations and problems existing in VBARD are including both subjective and objective factors Particularly, they are:  Low reputation in international settlement services It is certainly true that VBARD is not the first commercial bank when it comes to international trading services In fact, in Vietnam, most export or import companies would go to Vietcombank, the highest reputation and also longest experienced time active in this field For that reasons, Agribank found some difficulty in attracting the customers Additionally, since the turnover of international payment transactions is closely related to the turnover of foreign exchange trading, the bank still need a long way to raise its own reputation by heightening the quality of services  Some irrational decisions from managers in foreign exchange transactions VBARD does not allow too many foreign exchange transactions from branches with other credit institutions or branches can only buy not sell to another credit institutions This regulation has limited the flexibility of particular branch in find different sources of und and reduced the dynamism of market mechanism Furthermore, each branch receives a trading limit and the same rewarding plan However, the same limit applied for every branch is not suitable Since, there is difference in the economic growth of different locations Big cities like Hanoi, HoChiMinh city, Danang, Haiphong… are more popular with these services while poorer provinces located branches cannot find good source of customers In terms of rewarding plan, the regulations from managers should be more precise and accurate to encourage employees Also, documents from the center or headquarter often reach to branches late, causing problems in transactions  Unfamiliarity with online trading platforms Even though the modern technology has been equipped in the whole system with homogenous software, the softwares used for foreign exchange trading are of many kinds Võ Lê Phương ATCB –K12 42 Graduation thesis Banking Academy with new and old ones Therefore, it is difficult for central dealers to their job For one transaction, a dealer has to make a reference on different platform which causes complexity New online trading system brings many benefits and relatively user-friendly, but if the dealer does not get use to it, effectiveness cannot be secured  Lack in forecasting mechanism The fluctuation of exchange rate in the foreign exchange market is the fundamental source of risk Thus a good forecasting mechanism is of great importance So far, the operation of forex dealing office is quite passive, only to serve the instant demand from branch but cannot forecast the near future demand from branch to actively prepare and calculate the position In additional, a close forecast of exchange rate fluctuation can benefit the bank by obtaining fund at low price and sell at higher price to take profit VBARD as well as other commercial banks usually regard foreign currency fund as offbalance sheet items; the amount of currencies is bought or sold is for customers, it does not impact the asset or equity structure However, an effective forecasting mechanism may also help VBARD to hedge the risk  Staff quality at transaction offices and branches Foreign exchange is a very complex transaction, requiring a very good quality and broad knowledge of staff However, the employees from transaction offices and branches are just at average level In fact, the tellers at transaction offices and branches should obtain a considerable skills and knowledge to advice customers Moreover, foreign language ability of staff is limited, keeping them away from diverse sources of information on economy, politics, and society of the world  Regulations from State bank and influences of the economic climate VBARD is the state-owned commercial bank which is directly regulated by the State bank, every policy and decision from State bank immediately affects the bank Exchange rate management mechanism from State bank is sometimes not suitable and does not reflect the demand and supply relationship in the market Moreover, decision in buying and selling USD from State bank usually causes confusion among institutions and Võ Lê Phương ATCB –K12 43 Graduation thesis Banking Academy individuals The regulation from State bank can prevent commercial banks from making profit from the buy low - sell high mechanism The national economy of Vietnam is still young and has many shortcomings, the export and import activity is not well developed, and reputation of those companies is low This is the factor contributing to potential risks of commercial banks in providing payment services to them Most companies only have been familiar with spot transaction; therefore, commercial banks also find it hard to develop the transaction themselves Võ Lê Phương ATCB –K12 44 Graduation thesis Banking Academy Chapter III: SOLUTIONS TO ENHANCE THE EFFECTIVENESS OF FOREIGN EXCHANGE TRANSACTIONS AT VBARD With the above mentioned problems and limitations in the operation of VBARD as well as of the operation center, the following solutions are suggested basing on listed reasons 3.1 Solutions to the operation center Heading the transaction of the whole system, Agribank operation center has a very heavy task, yet the center should enhance its activity with these following solutions 3.1.1 Improve the technology At present, the equipment available at the operation center is relatively modern; however, foreign exchange transaction requires an accurate and highly effective technology Since the forex transaction conducted through online system, there always stands a chance of risk when the connection is cut or the outsiders intervene the transaction The center needs a specialized team to take care of the problems as well as working with providers to improve the quality Besides, dealers using the systems should also be sure of the functions and process to reduce mistakes 3.1.2 Enhance risk management scheme Foreign exchange transactions usually go with risks, so the risk management in every step is very necessary In the center there is a functional office for risk management but it supervises every service; therefore, relying on only this office is not enough Starting from the forex trading office, accounting and payment office to risk management office, there should be tight regulations to hedge the risk In the center, there are three round of confirmation for one transaction, which is a good policy However, there are many transactions per day; managers cannot check all of them within the limited time Thus, the check from lowest level is very important that needs to be done more intensively 3.1.3 Create a forecasting mechanism In order to better hedging the risk and currency position management, the center should be more active in forecasting the demand and exchange rates This can be done by several suggestions: Võ Lê Phương ATCB –K12 45 Graduation thesis Banking Academy  Require detailed report from branches in international settlement activity, clarify the near future demand from customers  Assign skillful and knowledgeable employees to study the market and give forecast on the fluctuation of exchange rate  Actively calculate and regularly review the cash flows and currency positions  Make reference from any available and reliable sources 3.1.4 Specify the target and strategy periodically Today, every bank creates a detailed strategy for each period; as such, the center also needs plans and strategies for foreign exchange activity in both domestic and international market Even the fluctuation of exchange rate sometimes has repetition cycle because of the business cycle in the economy, politics or social issues, a reasonable target will benefit the bank in clarify the short term operation to receive higher turnover and actively deal with any influence from the outside factors Additionally, plans and targets should also be flexible so as to facilitate the work effectiveness 3.2 Solutions to VBARD Despite some existing favorable conditions, VBARD still has to focus on many specific issues to enhance the effectiveness in foreign exchange transactions in the whole system 3.2.1 Improve quality of service Foreign exchange services are not the most popular activity of normal commercial banks; in case of VBARD, a bank focusing on aiding the agriculture development, these services are in the improving process In transaction offices and branches, the operation is still unprofessional with time-wasting paperwork It seems that not only in VBARD but in many other banks, the procedure to complete a foreign exchange transaction is very complex including buying or selling an amount of currency, changing the saving account denominated in VND to other currency, issuing a draft or international payment related services Võ Lê Phương ATCB –K12 46 Graduation thesis Banking Academy Commercial banks’ foreign exchange is always regarded as complex and risky transaction; thus it is important to the bank to deeply understand each operation as well as the regulatory documents To improve the quality of spot, forward and swap transactions, bank should determine the factors influencing the price, fee, value date and process to clearly inform customers, preventing them from misunderstanding and quarrel In terms of currency spot transaction, the bank needs to continue in improving both quality and quantity by good customer policy, remain connection with traditional customers and attract new ones Regarding forward and swap transactions, VBARD should create a better legal framework and complete the terms and conditions in the contract to protect itself from potential risk Forward and swap contracts are used to hedge the exchange rate risk; therefore, the bank should pay more attention on the impact of fluctuation on the effectiveness of contracts VBARD is still reserving to offer the currency option and currency future transaction The reason for this is partly from inadequate legal framework but also the lack of confidence from bank Since the two operations require a considerable understanding of the market and the huge responsibility of commercial banks, many banks defer the introduction of the services Until the State bank and the bank itself complete the detailed regulation on the transaction, currency option and currency future can come in practice to facilitate parties hedging the fluctuations of exchange rate and make profit 3.2.2 Enhance staff quality Along with the role of technology, human resource is also extremely important in improving the effectiveness of foreign exchange transactions In this field, ability of individual employee is not enough but of the whole group from manager to tellers Firstly, the manager’s ability plays a decisive role as it will affect the whole process and working results The manager should be skillful and flexible in giving policies and strategies by clarifying target and pursuing it, creating a friendly working environment Võ Lê Phương ATCB –K12 47 Graduation thesis Banking Academy Secondly, bank should invest on high quality staff to reinforce the efficiency of work Employees should all clear about the regulation and transaction process, update latest regulatory documents Tellers should understand the products to introduce and consult customers Literacy in latest technology and English is needed to improve the effectiveness of work For tellers, a command of communication skill is required to raise the image of the bank in public In brief, foreign exchange services is highly human sensitive, bank should start from selecting outstanding candidates, continuously supervising and intensively training 3.2.3 Tighten transaction management There has been record of many fault transactions at branches when dealing with customers and even with operation center Therefore, it is urgent to VBARD to tighten the management by detailed regulations Each demand from branch should be carefully revised by branch’s director before contacting to the operation center, avoiding the case of canceling deals Dealers who made mistake should be exclusively supervised and reduce their trading limits 3.2.4 Create effective customer policy Customer is the backbone of bank’s well-being, they are the one to create job, salary and lead to new source of customers Thus, it is of exclusive importance for bank to attract customers In this field, customers are the ones who have demand for foreign exchange including personal need, investment, export-import activity… The first thing to is determining the potential customers, then introducing them to the most suitable products, emphasizing their benefits, clarifying their rights and responsibilities In addition, to attract customers, the bank has to persuade them by competitive price and high quality services After completing transaction, it is advisable to keep in touch with customers for future co-operations In brief, with aim to increase the turnover and enhance the effectiveness in trading, VBARD should heighten its position in the interbank market by some listing activities: Võ Lê Phương ATCB –K12 48 Graduation thesis Banking Academy  Attract corporate clients for long-term cooperation by offering better price and fee along with special treats for traditional customers  Develop marketing strategy through advertising, holding conferences and collecting customers’ feedback  Create a suitable pricing policy for specific kinds of customers  Hire law companies to complete derivative contracts’ terms and conditions with customers  Select good staff to train intensively on profession and use them to study deeply the modern services  Maintain and widen the correspondent relationship with foreign commercial banks not only to enhance the effectiveness of international payment but also to learn their experiences and exploit information Võ Lê Phương ATCB –K12 49 Graduation thesis Banking Academy CONCLUSION With the primary aim of deeper understanding the operation of foreign exchange transaction at commercial banks, I have taken up this opportunity to learn from theoretical documents and real practices at Agribank Operation Center Through the time doing research and being an intern at the office, I have found many interesting cases in which practices are derived from theory Foreign exchange is getting more popular in the society and playing an increasingly important role in development of the national economy Comprehending this irreversible trend, VBARD has continuously modernized, enhanced and intensified the effectiveness of foreign exchange transactions All achievements that the bank has gained so far including the reform of latest technology, raising the turnover, improving services and training accomplish employees are the reward of its effort That in 2012 VBARD occupied the fifth largest provider of forex services has marked an outstanding performance during years However, there are still a number of problems in the bank such as the management of currency flows and risk hedging mechanism After analyzing the reasons of these real situations, I have suggested some solutions to the bank and to the operation center with hope to improve the quality of transactions Never can a single commercial bank complete all related issues of a foreign exchange transaction, but a unity of different parties involve, in this case the government, state bank, commercial banks and customers It is to my dearest hope that this research can give a partly view of the operation of foreign exchange service in commercial bank that is useful for the real practices in other credit institutions as well Võ Lê Phương ATCB –K12 50 Graduation thesis Banking Academy REFERENCES Ahamed Kameel Mydin Meera, Hedging foreign exchange risk with forwards, futures, options and the gold dinar: A comparison note, Department of Business administration, International Islamic University Malaysia Jeremy Waller, “Forex future trading – Advantages and Disadvantages”, Prof Nguyen Van Tien Foreign Exchange Trading Hanoi: Statistical publishing house 2012 Prof Nguyen Van Tien International Finance Hanoi: Statistical publishing house 2011 Ta Tuan Anh Solutions to improve the foreign exchange transactions at VBARD’s Lang Ha branch Hanoi: Banking Academy 2012 VBARD (2009, 2010, 2011, 2012) Annual report Vietcombank, BIDV ( 2009, 2010, 2011, 2012) Annual report Võ Lê Phương ATCB –K12