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Businesses not eager to avoid exchange rate risks
Businesses, especially importers and exporters, well understand that derivatives like future, option, forward and swap contracts can serve as tools that allow them to hedge exchange rate risks. However, they are still indifferent to the options.
Businesses, especially importers and exporters, well understand that derivatives like future, option, forward and swap contracts can serve as tools that allow them to hedge exchange rate risks
The VND/US$ exchange rate has been continuously fluctuating since the beginning of the year. In March, when the dollar value dropped dramatically (one dollar converted to VND15,500), export companies all suffered. For the last one month, the dollar value appreciation has been making importers weep. It is estimated that import and export companies have suffered the loss of several hundred billion VND due to exchange rate fluctuations.
High fee, complicated procedures
Huynh Quang Dau, Director of An Giang Agricultural Technique Services, said that he does not have the intention of using exchange risk hedging tools. “We only get $150,000 a month from exports, which is not worth wasting time and money on for procedures,” he said.
Even big import-export companies, which have the transaction value of up to several million dollars for every transaction, also say that they do not have a plan to use exchange rate hedging tools. Other companies say they will do something to avoid exchange rate risks, but cannot say exactly when.
To Ngoc Ngoi, Head of the Business Division under the Saigon Forest Products Import-Export Company, said his accountants have worked with banks on tools to hedge exchange rate risks. However, Ngoi said that the service fees will force the company to consider thoroughly before making a decision.
Market fledgling
Associate Prof Dr Su Dinh Thanh said that the derivatives market remains fledgling though banks have been providing these services for many years. Thanh said that commercial banks themselves don’t pay appropriate attention to developing these services.
The deputy director of a commercial bank admitted that banks do not see big profit from providing these services, because the fees from services prove be very small. Meanwhile, businesses are indifferent to the services, because they need to be capable of forecasting the value of the currencies in the future when using bank services.
Right in early 2003, the State Bank allowed Eximbank to provide options contracts in foreign currency trade. After that other banks, including Agribank, Citibank, Vietcombank and ACB, also got the right to perform the operation. However, to date, the spot market remains the biggest choice of businesses (90%), while derivatives market (future, forward, option and swap) remains very small.
Thanh said that derivatives will never develop as expected if the government does not intervene in the market. The government should have suitable policies to encourage commercial banks to provide derivatives services, while companies should be taught about the advantages of derivatives for their businesses in global integration.
Thanhnien
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