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Determination of profit / loss in trading foreign currency; Evaluation of foreign currency balance at the end of the.. period;.[r]
(1)FOREIGN CURRENCY ACTIVITIES AT
COMMERCIAL BANK
Chapter 05
Reading: Text book – Chapter 6:
(2)Objectives
Overview of foreign currency activities;
Determination of profit / loss in trading foreign currency; Evaluation of foreign currency balance at the end of the
period;
(3)Foreign currency trading (Forex trading) involves buying and selling foreign currency to:
Secure the balance of the forex trading account, Secure the source of foreign currency
Seeking profit through exchange rate differences
and interest rates between different currencies
(4) Foreign currency trading was born and developed to adapt the requirements of international trade activities
For banks, although trading foreign currencies is not a traditional activity, but the establishment of a division specialized in foreign currency trading becomes very necessary to:
Ensure that the foreign currency payment to customers between countries is done smoothly
Increase the “image” of the bank through the importing and exporting activities
Develop other activities such as international payment services, guarantee and other related-foreign currencies transactions
Earn revenue and profit for the bank through the foreign exchange transactions
Enhance the strength and ability to hedge risks due to exchange rate fluctuations and the competitiveness of the bank industry
(5)MEMBERS OF FOREIGN CURRENCY MARKET: STATE BANK;
CREDIT INSTITUTIONS; CUSTOMER
FOREIGN CURRENCY MARKET: INTERBANK;
BANKS & CUSTOMERS
ALL FOREIGN CURRENCY TRANSACTIONS BETWEEN
(6) Currency Exchange Rate is the price at a point of time, the
currency of one country can be converted to the currency of another country
Currency Exchange Rate is determined by the amount of
domestic currency units per unit of foreign currency
When the exchange rate falls, it means the appreciation of the
domestic currency and the depreciation of the foreign currency
On the contrary, if the exchange rate increases, the domestic
currency depreciate and the foreign currency appreciate
(7)Saigon Commercial Bank, at 9:15 am, there is
information related to foreign currency trading as follows:
1 USD = 0.709 GBP 1 USD = 23,000 VND 1 GBP = 31,000 VND
Assume that a staff in foreign currency trading
department is assigned VND 46,000,000 for trading
How does the staff trade to get the highest profit in VND?
(8)1 USD = 0.709 GBP; USD = 23,000 VND; GBP = 31,000 VND Case 1: VNĐ => Buy USD => Buy GBP => Sale GBP => Take VND: 46KK vnd 2K usd 1.418K gbp 44KK vnd => Loss: 2KK vnd.
Case 2: VNĐ => Buy GBP => Buy USD => Sale USD => Take VND: 46KK vnd 1.48K gbp 2.09K USD 48KK vnd =>Gain: 2KK vnd
(9)Foreign currency conversion link:
https://www.hsbc.com.vn/foreign-exchange/exchange-rate-calculator/
Performing foreign currency trading between:
UER - USD - VND UER - JPY - VND
(10)Determining the results of foreign
currency trading at
(11)=
= - x
Average buying
rate Average
buying
rate =
Beginning balance
value Beginning
balance
value ++
Value purchased during period Value purchased during period + + Amount purchased during period Amount purchased during period
Formula to determining foreign currency trading results at the end of period
11
xxx
-= = = = - -= = - -=
= xx
(12)=
Exchange rate adjustment:
Currency amount at the end of the
period;
Exchange rate at the end of the
period;
Handle the differences
VAT and assessment of exchange rate at the end of the period
VAT rate
x
Currency trading
result VAT
(13)Date Discription Amount Rate Amount left
Begin balance 120.000 20.000 120.000
05/05 Sale USD 80.000 20.010 40.000
10/05 Purchase USD 30.000 20.080 70.000
15/05 Sale USD 20.000 20.170 50.000
25/05 Purchase USD 50.000 20.160 100.000
Ending rate 20.200 100.000
1
Foreign currency trading of the bank in May make profit or loss? Evaluate the foreign currency differences at the end of May?
(14)
Derivative financial instruments
Forwar ds
Options Futures
(15) https://www.hsbc.com.vn/foreign-exchange/exchange-rate-calculator/