Macro-level Assessment

Transaction Risk Exposure (Import-Export Enterprises)

Export enterprises face the risk of VND appreciation, which may reduce foreign currency-denominated income when converted to VND. Import enterprises face the risk of VND depreciation, which may increase costs paid in foreign currencies.

Translation Risk: Vietnamese enterprises with overseas subsidiaries or investments face exchange rate fluctuation risks when preparing consolidated financial statements.

Economic Risk: Exchange rate changes may affect the overall competitiveness of enterprises.

Interest Rate-Related Risk: Enterprises with foreign currency loans face dual risks of exchange rate and interest rate fluctuations.

Supply Chain Risk: Enterprises dependent on imported raw materials face supply chain cost fluctuation risks.

Pricing Risk: Enterprises competing in international markets may face pricing pressure due to exchange rate fluctuations.

Macro-level Hedging Strategy Recommendations:

Natural Hedging: Match foreign currency income and expenditure as much as possible. For example, an export enterprise with USD income can seek suppliers that settle in USD. Advantages， Simple, no additional costs. Disadvantages， Difficult to match completely, may require changes in business model.

Forward Contracts: Sign forward foreign exchange contracts with banks to lock in future exchange rates. Implementation， For instance, if $1 million is needed in 3 months, agree on the exchange rate with the bank now for 3 months later. Advantages， High certainty, controllable costs. Disadvantages. Lack of flexibility, may miss favorable exchange rate movements.

Currency Swaps: Convert currency risk through swap contracts. For example, convert USD loans to VND loans while locking in future exchange rates. Advantages, Can manage long-term risks, suitable for large transactions. Disadvantages, High complexity, may require professional financial knowledge.

Options Strategy: Purchase currency options to gain but not obligate the right to trade at a specific exchange rate in the future. For example, buy USD put options for protection against VND depreciation. Advantages, Provides downside protection while retaining upside potential. Disadvantages, Requires payment of option premiums, can be expensive.

Dynamic Hedging: Adjust hedging ratios dynamically based on market changes and risk assessments. For instance, increase hedging ratio when VND tends to strengthen, and vice versa. Advantages, High flexibility, can optimize strategy based on market conditions. Disadvantages, Requires continuous market monitoring, higher management costs.

Multi-Currency Pricing: Use multiple currencies for pricing in contracts or include exchange rate adjustment clauses. For example, allow customers to pay in USD or VND, or adjust prices based on exchange rate movements. Advantages, Diversifies risk, increases pricing flexibility. Disadvantages, May increase contract complexity, requires customer acceptance.

Accelerate Collections and Delay Payments: Accelerate foreign currency collections when VND is expected to depreciate, delay foreign currency payments when appreciation is expected. Implementation, Achieve through adjusting credit terms or offering early payment discounts. Advantages, No need for financial instruments, directly affects cash flow. Disadvantages, May affect customer relationships, needs careful management.

Use Local Currency Loans: Use VND loans as much as possible instead of foreign currency loans. Implementation, Establish good relationships with local banks to obtain preferential local currency loan terms. Advantages, Eliminates exchange rate risk from foreign currency borrowings. Disadvantages, Local interest rates may be higher than international markets.

Diversify Currency Portfolio: Diversify holdings and transactions across multiple currencies. For example, hold EUR and JPY in addition to USD, currencies of major trading partner countries. Advantages, Reduces dependence on a single currency, diversifies risk. Disadvantages, Increases management complexity, may require more financial expertise.

Utilize Fintech Solutions: Use specialized foreign exchange management platforms and tools. For example, use software providing real-time exchange rate monitoring and automatic hedging execution. Advantages, Improves efficiency, may reduce transaction costs. Disadvantages, Requires investment in technology and training.

Policy Insurance: Purchase exchange rate insurance products provided by the government or professional institutions. For example, participate in potential SME exchange rate risk protection programs launched by the Vietnamese government. Government-backed, potentially lower cost. Coverage may be limited, not all enterprises may be eligible.

Other Multi-Industry Perspective Assessments

Industry Characteristics Analysis

1. Export-Oriented Manufacturing: Mainly faces VND appreciation risk.

Case Study: Taking the textile and garment industry as an example, with exports of about $39 billion in 2023. Assuming a 10% profit margin, every 1% appreciation of VND could potentially reduce industry-wide profits by about $390 million.

Special Considerations: Dependence on imported raw materials. If raw materials are mainly imported from China, CNY/VND exchange rate fluctuations are also an important risk factor.

2.Agriculture and Aquaculture Exports: Seasonal foreign exchange income, facing short-term exchange rate fluctuation risks.

Case Study: Taking coffee exports as an example, concentrated from October to March of the following year. During these 6 months, VND/USD exchange rate fluctuations could reach 3-5%, directly affecting farmers’ and exporters’ income.

Special Considerations: Compound effect of international agricultural product price fluctuations and exchange rate risks.

3.Tourism Industry: Income mainly in foreign currencies, costs mainly in local currency, facing significant exchange rate risks.

Case Study: Vietnam received 12 million international tourists in 2023. Assuming an average spend of $1,000 per tourist, a 1% appreciation of VND could lead to an industry loss of about $120 million.

4.Technology and Outsourcing Services: Revenue often denominated in USD, but costs (mainly salaries) paid in VND, facing exchange rate mismatch risks.

Case Study: For a software outsourcing company with annual revenue of $10 million, if VND appreciates by 5%, it could lead to a profit reduction of $500,000, assuming costs remain unchanged.

Special Considerations: Relationship between talent mobility and exchange rates. VND strengthening could increase USD-denominated talent costs.

Enterprise Scale Dimension

1.Large Enterprises: Usually involves multi-currency, large-scale transactions, with more complex risks.

Case Study: Vietnam’s dairy giant Vinamilk, with international business revenue of about $700 million in 2023, faces multi-currency exchange rate risks.

Special Considerations: Possess more professional financial teams and more hedging tool options.

2.Medium-sized Enterprises: Beginning to enter international markets but may lack systematic risk management.

Case Study: Manufacturing enterprises with annual turnover between $10-50 million may face 5%-10% of profits affected by exchange rates.

Special Considerations: Need to balance risk management and business expansion.

3.Small and Micro Enterprises: Most sensitive to exchange rate fluctuations but lack hedging capabilities.

Case Study: Small trading companies with annual exports less than $1 million, a 5% exchange rate fluctuation could directly threaten their survival.

Special Considerations: Need policy support and simple, feasible hedging solutions.

Geographical Location Dimension

1.Northern Region (e.g., Hanoi, Haiphong): Close trade ties with China, significant CNY exchange rate risk.

Case Study: Import-export enterprises in Haiphong port city, with about $15 billion in trade with China in 2023, CNY fluctuations directly affect profitability.

2.Southern Region (e.g., Ho Chi Minh City, Dong Nai Province): Concentration of foreign-invested enterprises, large USD and EUR risk exposures.

Case Study: Foreign-invested enterprises in Dong Nai Province industrial parks, with exports of about $30 billion in 2023, mainly facing USD exchange rate risks.

3.Central Region (e.g., Da Nang): Developed tourism industry, notable seasonal foreign exchange income.

Case Study: Hotels and resorts in Da Nang, with foreign exchange income during peak tourist season (May-August) accounting for over 50% of annual income, significant impact from short-term exchange rate fluctuations.

Financing Structure Dimension:

1.Foreign Currency Loan Dominated: Facing risk of increased debt burden due to local currency depreciation.

Case Study: A Vietnamese real estate company listed in Singapore, with 80% of debt denominated in USD, a 10% VND depreciation could lead to an 8% increase in debt costs.

2.Local Currency Loans Dominated: Relatively small direct exchange rate risk, but may face higher interest rates.

Case Study: SMEs mainly relying on Vietnamese local bank financing, with average loan interest rates of 7-9% in 2023, higher than USD loan rates.

3.Equity Financing: Foreign investors may reassess investment decisions due to exchange rate fluctuations.

Case Study: A Vietnamese tech startup receiving $10 million investment from a Singapore venture capital, VND depreciation may affect subsequent financing valuations.

Supply Chain Perspective:

1.Import-Dependent Enterprises: Raw material costs heavily affected by exchange rates.

Case Study: Vietnamese smartphone manufacturers, with 90% of components imported from South Korea and China, strengthening of KRW and CNY directly increases costs.

2.Local Supply Chain Enterprises: Relatively small direct exchange rate risk, but may be indirectly affected through customers.

Case Study: Local component manufacturers supplying Samsung’s Vietnam factories may be affected by Samsung’s exchange rate risk management strategies.

3.Vietnamese Enterprises in Global Supply Chains: Multiple exchange rate risks, including raw material imports and product exports.

Case Study: Vietnamese footwear manufacturers importing raw materials from China and exporting products to Europe and America, simultaneously facing CNY, USD, and EUR exchange rate risks.

Other Multi-Perspective Targeted Hedging Strategy Recommendations

Industry-Specific Strategies

1.Manufacturing: Combination of forward contracts and options.

Specific Operation: Use forwards to lock in exchange rates for confirmed orders, purchase options for potential orders.

Case Study: A furniture manufacturer with annual exports of $50 million could use 6-month forward contracts for 60% of expected revenue and purchase put options for the remaining 40%.

2.Agricultural Exports: Seasonal dynamic hedging + commodity futures.

Specific Operation: Gradually establish hedging positions 3-4 months before harvest season, while considering commodity price hedging.

Case Study: Coffee exporters could start establishing USD forward positions in June-July each year, while simultaneously hedging coffee price risk in commodity futures markets.

3.Tourism Industry: Natural hedging + flexible pricing.

Specific Operation: Increase suppliers settling in foreign currencies, adopt dynamic pricing models.

Case Study: Large resorts could settle with international travel agencies in USD, while dynamically adjusting room rates based on exchange rate movements.

4.Technology and Outsourcing Services: Cost matching + forward contracts.

Specific Operation: Link part of employee salaries to USD, use forward contracts to lock in remaining risks.

Case Study: Software companies could provide partial USD salaries for senior developers, while using 3-6 month rolling forward contracts to manage remaining exchange rate risks.

Enterprise Scale-Related Strategies

1.Large Enterprises: Comprehensive risk management system + complex financial instruments.

Specific Operation: Establish professional treasury management teams, use VaR models to assess risks, comprehensively utilize forwards, options, swaps, and other tools.

Case Study: Large enterprises like Vinamilk could consider using cross-currency swaps to manage multi-currency risks, while using option strategies to retain some benefits from favorable exchange rate movements.

2.Medium-sized Enterprises: Simplified risk assessment + basic financial instrument portfolio.

Specific Operation: Regularly (e.g., quarterly) assess risk exposure, mainly use forward contracts and simple option strategies.

Case Study: An electronic product manufacturer with annual turnover of $30 million could use forward contracts for 50% of expected net foreign exchange exposure, put options for 25%, and keep 25% open to maintain flexibility.

3. Small and Micro Enterprises: Natural hedging + government support programs.

Specific Operation: Match foreign currency income and expenditure as much as possible, utilize preferential exchange rate products provided by government or industry associations.

Case Study: A handicraft company with annual exports of $500,000 could seek local suppliers settling in USD, while participating in government-supported SME exchange rate protection programs.

Geographical Location-Related Strategies

1.Northern Region: Focus on CNY risk + bilateral currency swap.

Specific Operation: Establish CNY settlement mechanisms with Chinese suppliers, utilize Vietnam-China currency swap agreements.

Case Study: Electronic component importers in Hanoi could negotiate with Chinese suppliers to settle part of orders in CNY, reducing USD exchange rate risk.

2.Southern Region: Multi-currency management + offshore financial center advantages.

Specific Operation: Leverage the advantages of Ho Chi Minh City financial center to conduct multi-currency hedging.

Case Study: Foreign-invested manufacturers in Dong Nai Province could use NDF (Non-Deliverable Forward) contracts through Ho Chi Minh City branches to manage VND/USD risk.

3.Central Region: hedging + tourism product innovation.

Specific Operation: Establish hedging positions during tourism off-season, develop exchange rate-linked tourism products.

Case Study: Resorts in Da Nang could gradually establish USD forward positions during the off-season (September-November), while launching “exchange rate protection” travel packages to attract exchange rate-sensitive international tourists.

Financing Structure-Related Strategies

1.Foreign Currency Loan-Dominated Enterprises: Long-term currency swaps + refinancing considerations.

Specific Operation: Convert part of USD loans to VND liabilities through currency swaps, while monitoring VND loan market opportunities.

Case Study: A Vietnamese real estate company listed in Singapore could convert 50% of a 5-year $100 million loan to VND liabilities through currency swaps, locking in long-term exchange rate risks.

2.Local Currency Loan-Dominated Enterprises: Interest rate risk management + timely introduction of foreign currency financing.

Specific Operation: Use interest rate swaps to manage floating rate risks, while monitoring foreign currency financing windows.

Case Study: Manufacturing enterprises mainly using VND loans could use interest rate swaps to convert floating rates to fixed rates, while considering introducing partial USD loans when VND strengthens to reduce overall financing costs.

3.Equity-Financed Enterprises: Valuation currency diversification + revenue currency matching.

Specific Operation: Consider valuation based on USD or a basket of currencies, strive to increase revenue matching investors’ home currencies.

Case Study: Vietnamese tech startups receiving investment from Singapore VCs could expand part of their business to the Singapore market, increasing SGD revenue to reduce valuation exchange rate risks.

Supply Chain-Related Strategies

1.Import-Dependent Enterprises: Supplier currency diversification + procurement contract innovation.

Specific Operation: Develop suppliers from multiple countries, include exchange rate adjustment clauses in procurement contracts.

Case Study: Vietnamese smartphone manufacturers could develop suppliers from India or Malaysia while maintaining Korean and Chinese suppliers to diversify exchange rate risks. Meanwhile, include price adjustment mechanisms in large procurement contracts when exchange rate fluctuations exceed 5%.

2. Local Supply Chain Enterprises: Improve bargaining power + financial service innovation.

Specific Operation: Develop exchange rate risk-sharing mechanisms with downstream customers, develop supply chain financial products.

Case Study: Local component manufacturers supplying Samsung’s Vietnam factories could negotiate with Samsung to establish a dynamic pricing mechanism based on exchange rates, while leveraging Samsung’s credit advantages to develop supply chain financing products, reducing their own financing costs.

3.Vietnamese Enterprises in Global Supply Chains: Multi-currency risk management + global pricing strategy.

Specific Operation: Establish multi-currency risk assessment models, adopt flexible global pricing strategies.

Case Study: Vietnamese footwear manufacturers could establish comprehensive risk assessment models including CNY, USD, and EUR, dynamically adjusting product pricing based on exchange rate movements in different markets. They could also consider establishing sales subsidiaries in different currency zones to achieve natural hedging.

Conclusions and Recommendations

Comprehensive Risk Assessment: Foreign exchange risks faced by Vietnamese enterprises are multidimensional, requiring consideration of factors such as industry characteristics, enterprise scale, geographical location, financing structure, and supply chain perspectives. Different types of enterprises face varying degrees and natures of risks, necessitating tailored risk management strategies.

Differentiated Hedging Strategies: There is no one-size-fits-all hedging solution; enterprises need to choose appropriate strategy combinations based on their characteristics. From simple natural hedging to complex financial derivatives, enterprises should select appropriate tools based on their risk tolerance and management capabilities.

Policy Support Needs: For SMEs, access to suitable risk management tools and knowledge support is crucial. The government and financial institutions should consider providing more foreign exchange risk management support programs targeted at SMEs.

Importance of Capacity Building: Regardless of enterprise size, enhancing foreign exchange risk management capabilities is essential. This includes cultivating professional talent, establishing risk assessment systems, and improving financial management levels.

Dynamic Management Mindset: The foreign exchange market is constantly changing; enterprises need to establish dynamic risk management mechanisms, regularly assess risk exposures, and adjust hedging strategies in a timely manner.

Importance of Innovative Thinking: In addition to traditional financial hedging tools, enterprises should innovate in business models, pricing strategies, and supply chain management to fundamentally reduce foreign exchange risks.

Global Perspective: As Vietnamese enterprises become increasingly internationalized, they need to establish a more globalized risk management perspective, paying attention to the impact of global economic and political changes on exchange rates.

Technology Empowerment: Utilizing new technologies such as big data and artificial intelligence to improve risk prediction and management capabilities is an important future direction for foreign exchange risk management.