Enterprises seek exchange rate fluctuation measures

09:58 | 20/08/2018 Finance - Banking

(VEN) - The State Bank of Vietnam central rate of VND versus US$ increased by VND10 to VND22,669 per US dollar on July 31. Enterprises are being urged to adopt risk control strategies in the context of the US$/VND rate fluctuations to ensure business efficiency.

enterprises seek exchange rate fluctuation measures
The US dollar’s increase in value against the Vietnamese dong favors exporters but affects importers adversely

Dong down against the US dollar

Following strong US$/VND exchange rate fluctuations in late-July trading sessions, the SBV began selling US dollars to meet market demand and control the exchange rate.

According to Nguyen Hoang Minh, Deputy Director of the SBV’s Ho Chi Minh City branch, the foreign exchange market has been under increased VND/US$ rate pressure since the end of May, and the SBV took necessary control measures.

The SBV attributed the stronger dollar versus the dong to the US Federal Reserve (FED) interest rate hike, which also affected the gold market. The FED is expected to raise the interest rate two or three more times from now to the end of the year, which will likely result in future fluctuations in the US$/VND exchange rate, the SBV said.

The SBV is well positioned to control fluctuations in the exchange rate if necessary, as its foreign reserves have reached a record US$63.5 billion, and foreign currency from foreign invested enterprises, overseas Vietnamese and exports remain high.

One-to-three percent further rise

Economist Nguyen Tri Hieu said the US$/VND exchange rate is expected to increase 1-3 percent from now until the yearend, which is good for exporters but adverse for importers. Businesses are urged to devise appropriate solutions to deal with exchange rate fluctuations, including such traditional measures as swap (a derivative contract through which two parties exchange financial instruments) and derivative trading.

Digitization of capital management is a new trend to control the risk of exchange rate fluctuations. A recent survey by the Hongkong and Shanghai Banking Corporation Limited (HSBC) shows that 59 percent of fund managers believe digitization will have a significant impact on risk management strategies over the next three years, and 57 percent say they want to apply digitalization to improve financial competitiveness. Enterprises need to take the initiative in exchange and interest rate-related risk control to ensure efficient corporate governance and cash flow management.

Thao Ngoc