Earlier this week, Dak Lak Export and Import Investment Co and Technological and Commercial Joint Stock Bank (Techcombank) signed a futures contract in principle on goods transactions on the London International Financial Futures Exchange (LIFFE).
Participating this future contract aims at fixing risks protecting and preventing prices whenever there is a big fluctuation happening to the coffee price and helps coffee businesses be active with goods resources thanks to the capacity of receiving goods from the future market during scarcity of goods.
Although this is the type of good transaction in accordance with international principles, up to the present it is still strange to Vietnamese-owned businesses. Dak Lak Export and Import Investment Co (Inexim Dak Lak) is the first one that has officially participated the Liffe market even though Vietnam is one of the leading coffee exporters in the world. So, after a long period in unusual fluctuations of the coffee price, coffee growers and businesses have fallen in a situation of full of hardships.
Like the gold and forex markets, since the start of 2004, the US dollar has been freefalling and the gold price is continuously rising. To avoid and share risks with clients, many Vietnamese commercial banks have launched the services of gold or US dollar insurance or option in gold or US dollar transactions.
Clients can sign contracts with banks to buy gold or US dollar options in accordance with fixed times. Specifically, clients can decide the gold, US dollar price at the time of signing option contracts, if when buying or selling, the gold or US dollar price is lower than the price signed with banks, clients can cancel the contracts. However, if the gold or US dollar price is higher, clients can sell off based on the local market.
“Although only 10% of total machinery and equipment are imported from European Union, the depreciation of the US dollar against euro has seriously affected businesses’ decisions to invest in machinery and equipment from this market,” said a banker.
According to the banker, businesses still can minimise risks if they know how to utilise off gold or US dollar options. For example, a contract for supplying machinery and equipment worth 300,000 euro with a bank (in euro/US dollar exchange rate), at the time of signing the contract, one euro could buy 18,000 dong but at the time of paying, the euro/dong exchange rate climbed up to 23,000 dong a euro, so businesses might lose another one billion dong due to the price difference. Meanwhile, before signing contracts, Vietnamese businesses usually use the dong/US dollar exchange rate for calculations.
International economists predicted that the euro is continuously gaining its bigger strength against the US dollar in 2005. The euro/US dollar exchange rate will likely increase up to 1.45 in near future. Currently, about 80% of export and import businesses are choosing the US dollar for payments. Exporters and importers may suffer big damages due to storms of the exchange rate if they do not make exact decisions.
Truong Van Phuoc, chief of the forex administration of the State bank of Vietnam said that in this context of the economy, fluctuations to the exchange rate are very dangerous to export and import businesses. Therefore, these businesses should use measures including the US dollar option to prevent and minimise risks related to exchange rate. Up to now, only five Vietnamese businesses have been utilised this measure.