Multiple layers of business protection against exchange rate fluctuations

Exchange rate fluctuations force businesses to be proactive in prevention, in which using derivative financial instruments from banks is an option.

Proactive response

In recent days, the domestic foreign exchange market has witnessed a "hot" development when the USD/VND exchange rate continuously set new records. At its peak on April 25, the USD price at commercial banks was listed at 25,805 VND/USD for buying and 26,195 VND/USD for selling, an increase of 235 VND compared to 2 weeks ago. This is a historical high in the foreign exchange market.

As a company specializing in manufacturing, processing and exporting aluminum profile products in Tan Dan Industrial Park (Chi Linh), Dong A Aluminum Company Limited has its main source of revenue from processing activities for each order through export processing contracts signed annually with strategic partners. Some orders have processing fees of up to 6 million USD/month.

Similarly, Hai Duong Garment II Joint Stock Company also has its main source of revenue from processing fees for garment orders with some partners for export to the US market. Some orders have a total value of 1.3 - 1.5 million USD/year.

In theory, when the exchange rate increases, businesses that mainly export such as Dong A Aluminum or Hai Duong Garment II benefit more than businesses that import. However, many businesses believe that in reality, exchange rate fluctuations often have a two-way impact.

"For export shipments, the increase in the USD/VND exchange rate will help businesses increase revenue from the exchange rate difference. However, to have export goods, businesses must import raw materials. When the USD price increases, the cost of importing input materials increases accordingly. The stronger the exchange rate fluctuates, the greater the impact on businesses," said Ms. Nguyen Thi Que, Finance Director of Dong A Aluminum Company.

To cope with exchange rate fluctuations, one of the many solutions chosen by businesses is foreign currency derivative products from banks, such as foreign currency forwards.

For example, a bank and a business sign a foreign currency purchase contract of 10 million USD on date A, at the listed exchange rate of date A, to get VND, for a certain period, for example 3 months. After 3 months, the bank will buy back this 10 million USD in VND at the exchange rate signed on date A mentioned above.

Normally, businesses will choose a term of 1, 2 or 3 months. If there is good calculation and assessment of the fluctuations of the exchange rate, businesses will save billions of VND, avoiding the maximum impact of exchange rate fluctuations. "2 out of 5 businesses belonging to GFT Group - a very large manufacturer of plastic and metal toys in Vietnam, have saved nearly 2.5 billion VND from foreign currency forward contracts in the first quarter of 2024", Mr. Pham Van Thai, Head of FDI Enterprise Customer Department ( BIDV Hai Duong) informed.

Flexible foreign currency tools

The USD/VND exchange rate is very sensitive to macro policies from major countries. The US's use of tariffs to protect domestically produced goods in recent times has caused the exchange rate to fluctuate strongly, with unpredictable increases and decreases, sometimes even reaching several hundred VND/USD.

"Many businesses, including us, find it difficult to predict exchange rates in order to choose appropriate protection measures. If the US tax rate on imported goods from Vietnam is high and the exchange rate fluctuates strongly, we may consider finding other markets to reduce our dependence on the USD," said Ms. Le Thi Ngoc Tram, Head of Organization Department of Hai Duong Garment Company II.

Import-export enterprises and banks need to share information more closely to find appropriate solutions to foreign exchange rate fluctuations.

In the context of increasingly unpredictable exchange rates, interest in exchange rate risk protection tools seems to be limited. At BIDV Hai Duong, out of 2,619 foreign currency transactions with businesses in 2024, only 19 transactions used exchange rate protection tools. Since the beginning of 2025, no business has used these tools.

The increasingly unpredictable US tariff policy has created far-reaching impacts on the domestic economy , especially import-export businesses. The business community is hoping for positive signals from the ongoing trade negotiations with the US, but regardless of the scenario, businesses need to be proactive.

The US is still an attractive export market. Therefore, import-export enterprises need to coordinate with banks and carefully study exchange rate protection tools to make flexible choices. Besides forward, foreign exchange swaps and cross-currency swaps (CCS) are also useful protection layers.

“For example, if the exchange rate is predicted to increase, businesses can use forward rate transactions with import orders to limit the exchange rate difference, and use spot transactions with export orders to benefit from the difference. Businesses can also consider using cross-currency swaps. Simply put, it means using another foreign currency during the transaction, which can be the EUR (European common currency), JPY (Japanese yen) or another foreign currency. This tool is considered relatively effective in preventing exchange rate fluctuations, especially in the medium and long term, through flexible conversion of payment currencies,” Mr. Pham Van Thai added.

According to a representative of Vietcombank Hai Duong, large import-export enterprises have shown a certain interest in exchange rate protection tools, but small and medium enterprises often ignore these tools. Given the complex developments of the world economy, enterprises need to change their cash flow management methods to avoid being passive in the face of exchange rate fluctuations.

HA KIEN

Source: https://baohaiduong.vn/nhieu-lop-bao-ve-doanh-nghiep-truoc-bien-dong-ty-gia-411113.html