Analysis, evaluations and solutions for improving effectiveness of the foreign currency business operation of the Vietnam bank for Agriculture and rural development : M.A Thesis. Business Administration

V IE T N A M N A T IO N A L U N IV E R S IT Y HANOI SCHOOL OF BUSINESS DANG VIET ANH ANALYSIS, EVALUATIONS AND SOLUTIONS FOR IMPROVING EFFECTIVENESS OF THE FOREIGN CURRENCY BUSINESS OPERATION OF THE VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT M ajor: Business Adm inistration Code: MASTER OF BUSINESS ADMINISTRATION THESIS SU P E R V IS O R : HOANG ANH TUAN H A N O I, 2004 TABLE OF CONTENTS A B S T R A C T Ui TÓM T Ắ T IV A C K N O W L E D G E M E N T S V P R E F A C E .vi TA BLE O F C O N T E N T S ix PART I: BASIC CONCEPTS OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 10 1.1 FO R EIG N E X C H A N G E M A R K E T .10 1.1.1 B asic concepts o f the foreign exchange m ark et 10 1.1.2 Participants in the foreign exchange m a rk e t 11 1.1.3 F unctions o f th e foreign exchange m a rk e t 12 1.2 SO M E B A S IC D E F IN IT IO N S O F T R A N S A C T IO N S O N T H E FO R EIG N E X C H A N G E M A R K E T 12 1.2.1 Spot foreign exchange tra n sac tio n 12 1.2.2 Forw ard tra n s a c tio n 13 1.2.3 Sw ap tra n sa c tio n 13 1.2.4 Futures tra n s a c tio n 13 1.2.5 O ptions tra n s a c tio n 14 1.3 IN T E R N A T IO N A L PA Y M E N T O P E R A T IO N S 14 1.3.1 D efinition o f international p a y m en t 14 IX 1.3.2 Role o f international paym ent tow ards operations o f com m ercial banks 15 PART II: OVERVIEW OF FOREIGN CURRECY BUSINESS OPERATION AND ITS ENVIRONMENT .18 2.1 SO C IA L E C O N O M Y E N V IR O N M EN T A N A L Y S IS 18 2.2 B U SIN E SS E N V IR O N M E N T A N A L Y SIS 19 2.2.1 M a rk e t 19 2.2.2 M arket s h a r e 20 2.2.3 C om petition in the bank finance m ark et 21 2.2.4 SW O T a n a ly s is 24 PART III: THE FOREIGN CURRENCY BUSINESS REAL SITUATION OF AGRIBANK 27 3.1 A C H IE V E M E N T S A FT E R 12 YEARS ( 1992-2004) IM PLEM EN T T H E FO R EIG N CURRENCY B U SIN ESS O PERA TIO N IN A G R IB A N K SY STEM 27 3.2 A G R IB A N K ’S RESTR IC TIO N S IN TH E FO R EIG N CU R R EN C Y B U SIN ESS O P E R A T IO N 29 3.3 REA SO N S O F R ESTRICTIO N S IN FO REIG N C U R R E N C Y O PERA TIO N OF A G R IB A N K 34 PART IV: RECOMMENDATIONS AND CONCLUSIONS 43 O B JE C T IV E S 43 R E C O M M E N D A T IO N S 46 C O N C L U S IO N S LIST O F R E F E R E N C E S A PPE N D IX E S 10 PARTI BASIC CONCEPTS OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 1.1 FOREIGN E X CH AN G E MARKET The foreign markets are truly global in that they trade the currencies o f the majority of nation states The foreign exchange markets never close; som ew here in the world participants are trading currencies twenty-four hours a day The price o f one currency relate to another (that is, the exchange rate) changes all the time As new economic, political, financial and social information is released to the markets, dealers reassess the value o f a currency 1.1.1 Basic concepts o f the foreign exchange market The foreign exchange market is place where execute trade m oney o f the different countries There are tw o types to organize foreign exchange market: - Exchange Trading Floor: this type has specific place and time o f transactions were also defined specifically - Over The C ounter (OTC): Market where transactions are conducted over the telephone and computer network o f dealers, rather than on the floor o f an exchange The derivative product transactions as swap, futures and options are traded at over the counter market !1 Spot foreign exchange and forward transactions are also traded at over the counter market on the w orldw ide scope; operate continuously during 24 hours by uneven time zone between different areas Thus when a market closed, other market is still operating The operation schedule o f some big foreign exchange market following will show operation continuously o f the foreign exchange market GMT 12 16 20 24 -► T o k y o p Frankfurt ► < London - ► < New York The big foreign exchange transaction centers o f the world are London, New York and Tokyo Daily turnover o f foreign exchange transaction following1: - England 30% - Hong Kong 6% - The United States 16% -S w iss 6% -Japanese 10% -G erm any 5% - Singapore 7% - France 4% 1.1.2 Participants in the foreign exchange market The core members o f the foreign exchange market including: BIS Central Bank Survey 1995 ► Central Bank - Commercial Bank and financial institution - Companies The Central Bank participates in the foreign exchange market to maintain the foreign currency reserve; exchange rate stabilization, monitor exchange rate and intervene to restrict the changing o f exchange rate The commercial banks participate in the foreign exchange market to serve payment demand o f custom ers, insure the exchange rate risks and perform the foreign currency business The companies participate in the foreign exchange market to serve demands about investment and commerce operations 1.1.3 Functions o f the foreign exchange market Foreign exchange market exists and develops to serve the following demands: - Trade and investment demand: the import export companies need foreign currency to serve the payment demands - Hedging demand: the members participate in the foreign exchange market with purpose is exchange rate risks reducing - Speculation demand: entrepreneurs exploit the exchange rate changing to get profit 1.2 SOME BASIC DEFINITIONS OF TRANSACTIONS ON THF FOREIGN EXCHANGE M ARKET 1.2.1 Spot foreign exchange transaction 13 Spot foreign exchange is the purchase or sale o f an amount o f one foreign currency against an am ount o f another currency, the exchange rate is determ ined at transaction date, for which settlement takes place one or two business day(s) later depending on the currencies involved 1.2.2 Forward transaction Forward contracts are agreements directly entered into between a buyer and a seller, calling for delivery o f a specified amount o f a specified asset at a specified, future date The exchange rate is determined at transaction date The buyer and the seller are direct contractual counterparties to one another 1.2.3 Swap transaction This term is used in many contexts In general it is the simultaneous purchase and sale o f foreign exchange or securities, with the purchase being affected at once and the sale back to the same party to be carried out at a price agreed upon today but to be com pleted at a specified future date Swaps include interest rate swaps, currency swaps, and credit swaps A "swap rate" is a forward foreign exchange quotation expressed in terms o f the num ber o f points by which the forward rate differs from the spot rate 1.2.4 Futures transaction An agreement to buy or sell a set amount of a commodity or security in a designated future month at a price agreed upon today by the buyer and seller A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction A future is pan o f a 14 class o f securities called derivatives, so nam ed because such securities derive their value from the worth o f an underlying investment 1.2.5 Options transaction An option is a contractual agreement that gives the holder the right to buy (call option) or sell (put option) a fixed quantity o f a security or commodity (for example, a commodity or commodity futures contract), at a fixed price, within a specified period o f time May either be standardized, exchange-traded, and government regulated, or over-the-counter custom ized and non-regulated 1.2.5.1 Call option An option that gives the buyer (holder) the right, but not the obligation, to purchase a specific asset or obtain a long futures position at a fixed price w ithin a specified period o f time 1.2.5.2 Put option An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date 1.3 INTERNATIONAL PAYM ENT OPERATIONS 1.3.1 Definition o f international payment International paym ent is currency payment obligations which arise from the economic relations, commerce and other relations betw een subjects o f countries Different with local payment, international payment has special features following: 15 - Subjects participate countries Each in the international payment operation at various international payment transaction relates at least two countries - International paym ent operation relates legal system o f various countries, even contrast Thus each subject usually selects unify the legal procedures and accordance w ith international standards Popular language is used in the international paym ent is English International paym ent operation requests high professional ability and technology have to match with international 1.3.2 Role of international payment towards operations o f com m ercial banks 1.3.2.1 International paym ent creates condition to attract custom er, expand the business market share o f commercial banks The commercial banks are financial middleman, execute the business functions in currency field, credit and provide the banking services Through the business operations, commercial banks established relationships not only organizations, local customers but also other international business organizations and becom e a subject participate in the international payment operation In the international paym ent field, commercial banks are not only payment middleman but also consultant for customers about payment conditions, ask management ... especially foreign currency demand For this reason, any banks in Vietnam if promote and gain the initiative in the foreign currency business operation, these banks have more opportunities to occupy the. .. following demands: - Trade and investment demand: the import export companies need foreign currency to serve the payment demands - Hedging demand: the members participate in the foreign exchange... OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 1.1 FOREIGN E X CH AN G E MARKET The foreign markets are truly global in that they trade the currencies o f the majority of