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International Payment - Coggle Diagram
International Payment
Exchange rate
the rate at which one currency can be exchanged for another.
Types
Buying rate
the rate at which a bank buys foreign currency from customers.
Selling rate
the rate at which a bank sells foreign currency to customers.
Transfer rate- the rate used for non-cash transactions (e.g., via bank transfer).
Spot exchange rate - for immediate currency exchange. (giao ngay)
Forward exchange rate - rate agreed upon today for a transaction in the future. (kỳ hạn)
Others
Nominal exchange rate does not take inflation into account.
Real exchange rate adjusts for inflation and purchasing power.
Cross rate is the exchange rate between two currencies calculated through a third currency (usually USD).
6 Factors affecting
inflation
lower inflation -> increased purchasing power -> stronger currency
interest rate
High IR -> attract foreign capital for better return -> increase demand for the currency.
Balance of trade
trade surplus (export > Import) strengthens a currency , deficit weaken
monetary policy
Central bank interventions affecting (Buying- stronger, selling - weaken)
Social situation
Stable countries attract investment
market sentiment
Tâm lí thị trường
Speculation- Đầu cơ
investors expect a currency to strengthen, they will buy more of it, pushing its value up.
Impact on I Payment
Import costs
weaker local currency -> importers have to pay more for the same foreign goods.
Export revenue
weaker local currency -> exported goods cheaper + more competitive
Profit margin
Exchange rate fluctuations decrease or increase PM
NN- Foreign currency liabilities
Nợ bằng ngoại tệ
higher repayment costs if the domestic currency depreciates.
Risk exposure
rủi ro tỷ giá
Uncertainty in foreseeing cost n profit
When/ Others
🔹 In letter of credit (L/C) transactions, the exchange rate applied is usually the bank’s selling rate on the date of L/C opening or payment.
🔹 If payment is made in local currency for a foreign-currency-based invoice, the converting rate is based on the bank’s posted rate.
bảo hiểm rủi ro tỷ giá (hedging)
for business
Forward contract - HĐ kỳ hạn- binding
A binding agreement to buy/sell a certain amount of foreign currency at a
fixed rate on a specific future date.
Option contract- HĐ quyền chọn- not binding for buyer
Gives the buyer the right, but not the obligation, to buy or sell a currency at a
predetermined rate before or on a set date
.
Currency swap - hoán đổi tiền tệ- with bath
two parties to exchange currencies and interest payments for a specified period.
Formular
Exchange Rate= Amount of Foreign Currency/ Amount of Domestic Currency
Amount after conversion = Original amount × Exchange rate
Cross rate = Rate A/B × Rate B/C = Rate A/C
EUR/VND=EUR/USD×USD/VND
CIF Price=FOB Price+Freight costs+Insurance costs
3 I payment instruments
(chứng từ)
Bill of Exchange (Draft)
Hối phiếu
A written, unconditional order from
seller
request
to buyer
to pay amount a fixed future date.
Usually in documentary collection and L/C.
tranferable
Advantage
Can be discounted before maturity
tranferable
Secured payment under L/C or collection
Cheque (Check)
A written order from
a bank account holder
to their bank
to pay amount to a named person.
Less used - fraud risk and slow processing.
small or local payments
No need for complex documentation
but can be denied (fake signature, edited cheque, not enough money), Long processing time
Bank Card (Credit/Debit Card)
A plastic card issued by banks allowing the holder to pay for goods/services or withdraw money.
small transactions, online payments- not widely use in B2B trade
have limits and lack security
No document verification or payment guarantees.
5 Methods
without commercial documents
Telegraphic Transfer (T/T) - chuyển tiền điện tử
the
buyer sends money
directly to the
seller’s bank account
through electronic banking systems.
fast and simple, but
high risk for the seller
, when payment is made after shipment.
Collection- Nhờ thu
the
seller asks their bank to collect payment from the buye
r through the buyer bank.
*Clean Collection” (without documents) or “Documentary Collection” (with)
Less secure than L/C, depends on buyer’s willingness to pay.
With CD
L/C > Collection > T/T > Cheque (rủi ro nhất cho ng bán)
Documentary Collection (D/P, D/A)
D/P (Documents against Payment)
Buyer pays immediate when documents are presented
D/A (Documents against Acceptance)
Buyer
accepts bill
and pays later, higher risk to seller
Letter of Credit (L/C): bank guarantees payment
if documents comply
The issuing bank (buyer) issues the L/C and sends to the advising bank to notify the exporter. If exporter is concerned -> can request a confirming bank in their country to ensure payment, and submit the required documents for payment.
UCP 600
(Uniform Customs and Practice )- L/C only
Advantage: secure payment for exporter