International trade transaction has been increasingly expanded, accordingly Vietnamese businesses have faced up more risks because of special features of such kind of business activities. However, Vietnamese businesses are still indifferent to trade risk insurance tools.
Big fluctuations of forex rates, goods prices over the last month, particularly on recent days have shown complicated risks during integration process into international trade. The US dollar has regained some strength lately with the cross rate between the euro and the dollar down to one euro for US$1.3037 from the peak of one euro for US$1.384.
Such fluctuations evidenced that those who participated into international trade should utilise other forex hedging options to avoid losses.
In a bid to assist businesses to realise the aforementioned insurance operations, some commercial banks started to trial the use of forex options in 2003. Also, gold and coffee price options and interest rate swaps were introduced and new regulations on foreign currencies by the State Bank of Vietnam from early December, 2004 officially allowed all commercial banks to provide more hedging forex options.
Additionally, the central bank allowed forex risk hedging tools for businesses and members of the foreign currency market. Options, a popular risk-hedging tool preferred in the international foreign currency market, was formally introduced for the first time in Vietnam. However options have not strongly developed and widely utilised in Vietnam because of the three following reasons:
Firstly, most Vietnamese businesses do not have qualified chief financial officers that understand the benefits and can project fluctuations of markets, forex rates, interest rates and prices in order to put forward measures to their boss to offset risks. Vietnamese businesses still follow simple day-to-day traditional business practices which means whenever they need US dollars or gold, they simply go and buy it or whenever the market has a demand for US dollars or gold, they sell. It is the same case for export of coffee, import of fertilisers—forward risk hedging has never been used until recently.
As for coffee, the Dak Lak Investment and Import-Export Co (Inexim Dak Lak) in December, 2004 became the first Vietnamese business to attend the London International Financial Futures Exchange (LIFFE), also became the first client to sign a futures contract on goods with the Technical and Commercial Bank of Vietnam (Techcombank) to make transactions on LIFFE via this bank. Most of other Vietnamese businesses remain indifferent to this kind of service.
Secondly, option transaction fees at Vietnamese commercial banks is high. Specifically, option fee for forex rate transaction of a one-month term is fixed at 1.3%, two-month term 2.2%, and a three-month term 2.8% while the dong/US dollar rate posted a low increase, that is less than 1% last year. Thus, upon considering disadvantages of options, Vietnamese businesses did not choose this risk insurance service. Regarding gold options, that the minimum transaction amount for individuals is regulated at 100 taels [a tael equals 1.2oz] of gold and for legal entities 1,000 taels is considered out of reach for most.
Thirdly, marketing activities of commercial banks have not been efficiently promoted. Therefore, Vietnamese businesses, on one hand, have not known of this service and on the other hand, fail to see the advantages of options.