Foreign exchange rate risk management at nha phuong co , ltd

PROJECT GRADUATION INTERNSHIP REPORT: FOREIGN EXCHANGE RATE RISK MANAGEMENT AT NHA PHUONG COMPANY Ltd UNIVERSITE DE NICE SOPHIA ANTIPOLIS Institut d’Administration des Entreprise Supe

PROJECT GRADUATION INTERNSHIP REPORT:

FOREIGN EXCHANGE RATE RISK MANAGEMENT

AT NHA PHUONG COMPANY Ltd

UNIVERSITE DE NICE SOPHIA ANTIPOLIS

Institut d’Administration des Entreprise

Supervisor : Dr DO KIM SON

Class : Master Affaires et Management International Student Code : 21513546

UNIVERSITE DE NICE SOPHIA ANTIPOLIS

Master Internship Report

FOREIGN EXCHANGE RATE RISK MANAGEMENT

AT NHA PHUONG COMPANY Ltd

October 2016

Class : Master Affaires et Management International Student Code : 21513546

ACKNOWLEDGEMENTS

First, I gratefully acknowledge for the support, assistances from my friends and my colleagues at Nha Phuong Company I also would like to express my deep appreciation to my supervisor, Dr Do Kim Son for his proper orientation and guidance He instructed me to correctly approach issues, gave me valuable comments and reviewed carefully my internship report

I would also like to thank all the staffs of The International Relations Department for their support during MBA program

Throughout the learning AMI of Nice Sophia Antipolis University and internship period

in Nha Phuong Co., Ltd., I understood the difference between theory and practice I tried to acquire the basic knowledge, practical experience as well as to learn the knowledge about the business operations of the Company

I look forward to receiving the sincere advice of the Professor in the Nice Sophia Antipolis University

Finally, I hereby extend my indebtedness to authors, whose works I quoted, adopted and referred during writing of this graduation thesis I am accountable for any omissions, mistakes committed in this graduation thesis

This chapter mainly focus on Nha Phuong Company Ltd

- Chapter 2: Nha Phuong Company Structure and Organization Chart

This chapter provides an overview of the structure of corporate organization

- Chapter 3 : Tasks assigned and Goal achieved

This chapter consists of Research Design, Data Collection Methods, Sampling Plan and

Scaling and Measurement, analysis methods

- Chapter 4: Foreign exchange rate risk management at Nha Phuong Company Ltd This chapter deals with analysis and assessment of Nha Phuong Company Ltd’s main activities and operations An emphasis is focusing for foreign exchange rate risk management

at Nha Phuong Company from 2010 to 2014

- Chapter 5: Improve foreign exchange rate risk management at Nha Phuong Company Ltd

A strategy analysis of Nha Phuong Company Ltd and recommendations, proposals on foreign exchange rate risk management are given in the last chapter such as: developing organization structure, foreign exchange rate risk policy, improving management capacity and training policy and modernization

3.4 F EEDBACK TO THE N HA P HUONG C OMPANY L TD 12

3.5 T HEORETICAL KNOWLEDGE ACQUIRED DURING MY ACADEMIC YEAR IN M ASTER AMI THAT IS APPLICABLE

AN ASSESSMENT OF FOREIGN EXCHANGE RATE RISK MANAGEMENT AT NHA

4.1 F ORECASTING E XCHANGE R ATE R ISK IN N HA P HUONG C OMPANY L TD 15

4.2 M ANAGEMENT OF FOREIGN E XCHANGE E XPOSURE IN N HA P HUONG C OMPANY L TD 15

4.3 F INANCIAL INSTRUMENTS AND TECHNIQUES USED BY NHA PHUONG COMPANY LTD FOR FOREIGN

5.2.1 F ORECAST RATES 22

INTRODUCTION

Nowadays, with the trend of globalization, the operation of the business is not only confined to a country anymore, but there is also a trend of increasing expanding business through exporting and importing operations on the world market The import-export activity is very important in the international economic integration of Vietnam Through importing and exporting, countries can exploit their advantage, and at the same time, importing goods and technologies for the production and consumption of their own countries For a long time, to cater for the objectives macro, the exchange rates kept at the relatively stable stage Exchange rate fluctuations may not have a significant impact on production and business results, so businesses have been less concerned about the exchange rate risk To increasingly adapt to the openness and integration of the world economy, especially after Vietnam jointed the TPP agreement, so many policies have been proposed, including the State Bank has continuously widened the exchange rate This mechanism along with the general volatility of the global economy has led to fluctuations in relative exchange rates during the last few years The more flexible mechanism, the greater the exchange rate risk, and exchange rate risk currently being evaluated as one of the five main business pressure facing business alongside others such as: tax policy, competitive environment, and capital market volatility Therefore, the management

of exchange rate risk arises as an inevitable necessity for enterprises operating income and expenditure in foreign currency

Nha Phuong Company was founded in 2004, main business activities in the field of import – export and logistic Therefore, the foreign exchange risk rate management is of paramount importance for Nha Phuong Company Recognizing the problem within Nha Phuong Company

Ltd, the author came to have a selection of the topic “Foreign Exchange Rate Risk

Management at Nha Phuong Company Ltd” for my Internship Report

OVERVIEW OF NHA PHUONG COMPANY LTD 1.1 An introduction of Nha Phuong Company Ltd – History of Establishment and Development

- General introduction:

+ The name of Company: Nha Phuong Company Ltd

+ Address: Km2, Zone 7, Hai Yen street, Mong Cai City, Quang Ninh province + Forms of ownership: Limited liability Company with two or more members

+ Authorized capital: 5.000.000.000 VND

+ Tax code: 5700496135

+ Telephone number: 0333882010

- Place and year of establishment:

+ Certificate of business registration No 2202000619 by Department of Planning and Investment of Quang Ninh province, issued on May 15, 2004

+ Business account: 0551000001610 at Vietcombank – Mong Cai Branch

- History of Establishment and Development of Nha Phuong Company Ltd:

Nha Phuong Company was established by Pham Duc Nha on May 15th, 2004 with total authorised capital of 5.000.000.000 VND Nha Phuong Company Ltd’s headquarter locates in Mong Cai City- recognized as one of the most important border city between Vietnam and China, through both land and sea Along with signed Trade agreements between Vietnam and China, Nha Phuong Company has more favourable conditions for development and expansion, especially relating to its main business activities, which focus on import – export agriculture goods

It is continuously growing with the firm belief in its core values, including staff’s creativity, flexibility, high adaptability single market and global thinking that are fundamentalfor the long-term growth and sustainability of the Company Nowadays, it is recognized as an important link to the supply chain of agricultural sector in Vietnam, a bridge between Chinese agricultural markets and trade companies, manufacturers, farmer and domestic consumers It is truly a pioneer in technological innovation, financial management to create competitive advantages with more solutions to satisfy the increasing needs of customers

With vast experiences in international agricultural trade, combined with the ability of connection and building relationship with partners and global supplier, flexible financing solutions, system services and infrastructure investment, it satisfies customers demand in every

Nha Phuong Company is looking towards to become a leading enterprise in the country and regions, also create a dynamic working environment, creativity, multicultural, hence bringing development opportunities for business partners and local communities

1.2 Main business areas

Nha Phuong Company’s main business areas are local logistic and import – export They have over 10 years of experience in import – export activities Additionally, the Company has expanded its business areas to supply the outsourcing production services, remanufactured goods, entrusted import-export, transshipment Import/export businesses match domestic and foreign buyers and sellers of various products and commodities Import/export companies typically have low overhead costs and lean business models, allowing them to reach sizable profits for a minimal investment Sales, marketing, local business legislation and relationships are the crucial elements that can influence directly on new import/export business’s survival

In import-export business, the main items of the Company include:

- Exporter: The Company directly export the following items:

+ Business Department I: Carpets rush, Len, art furniture, foam slippers, …

+ Business Department II: Tea, Bamboo laminated chipboard, Wood interior, … + Business Department III: fruits, silk, bleached yarn, clothing fibers, …

+ Factory T3: Spices, May embroidery, straw mats, …

+ Lai Chau Subsidiary: Leather cattle belonging, shutters architecture,

+ Hai Phong Subsidiary: Clothing sweater, …

+ Lang Son Subsidiary: Fruit, Clothing sweat, …

- Import: The Company directly imports the following items:

+ Consumer goods: Acrylic Yarn, Oven, electrical appliances, motorcycles, cars, cloth, food

+ Materials and equipment for production of fertiliser, petroleum, chemicals, plastic resins, automobile parts, agricultural machines,

Looking at the Company’s main business items, it is recognizable that business strategy focuses on diversification However, in export sector, its main items are mostly agricultural products, which are the traditional products of the Company, assisted by plentiful and abundant domestic supply They well adapt with the conditions of production in Vietnam Regarding import, Nha Phuong Companies focus on material goods for production, which domestic supply capacity has not met the demand, especially in the Northern provinces

Overall, local logistic and import- export businesses are State’s incentive subject This is also the main items business of the import and export directly Company For the Company, they must find the high-quality resource in order to satisfy customers’ growing demand

- The targeted customers of Nha Phuong Company Ltd:

+ Thanks to its endeavour, more than six years of operation – the company in Ha Tay has established strong relationship with many domestic and foreign customers

+ Domestic customers of the Company are divided into different categories: retail, customers, wholesale buyers who are mainly concentrated in highly developed cities such as: Hanoi, Hai Duong, Ho Chi Minh City, Quang Ninh Province, …

+ Foreign customers of the Company are from the west of China, Hong Kong, Taiwan,

Domestic Company

Foreign Company

Co Operative Farmers

-1.3 Basic financial data

Below is consolidated financial report dated on December 31, 2015 include:

Table 1.1 Consolidated Balance Sheet Report dated December 31, 2015

BALANCE SHEET DECEMBER 31, 2015

Contributory tax payer: Nha Phuong Company Ltd

Currency: Viet Nam Dong

A A – SHORT-TERM ASSETS 54,644,364,708 39,597,295,722

I I Cash and cash equivalents 10,224,209,272 10,032,126,504

I

III III Short-term receivables 31,785,503,338 20,232,731,645

V V Other current assets 554,671,195 323,939,219

IV IV Other long-term assets 86,446,143 81,255,923

TOTAL ASSETS 63,771,239,538 49,728,723,731

RESOURCES

A A - LIABILITIES 51,466,788,405 37,526,090,799

I I Short-term liabilities 51,466,788,405 37,526,090,799

1 1 Short-term loans and debts 37,380,000,000 37,410,000,000

4 4 Taxes payable to State Treasury 51,918,690 116,090,799

8 General and administrative

NHA PHUONG COMPANY STRUCTURE AND ORGANIZATION

CHART 2.1 Organization structure

Diagram 2.1 Organization structure of Nha Phuong Company Ltd

Vice Director

Finance Manager

Supply Chain Manager

Operation Manager

General Director

Salesmen

Chief Accountant

HR Manager

Accountant HR Staffs

Warehouse Manager

Delivery Manager

IM/EX Manager PGs

Nha Phuong Company Ltd has been registered as a limited Company, which include:

- General Director (CEO) appointed by the Management Board, who represent the legal

of the Corporation CEO directly operating producing and daily business activities of the Corporation following the Resolution of the Board

- Vice Director is responsible for assisting CEO to make some specific managerial work

as authorized or assigned by General Director

- Sales manager is responsible for selling products by conducting sales plans, supervising sales staff They are also required to meet organization's sales targets through effective planning and budgeting

- Finance manager is identically considered to a treasurer position who has additional responsibilities of analysis that includes support to the management team in various operational decisions This job description assumes a view of the finance manager position As such, the finance manager should take care of funds in a manner in order to get return on investment maximized while minimizing risk and in the same time, ensuring that an adequate structure of control is set in place over funds' transfer and investment The finance manager, furthermore, is engaged in financial analysis in forecasting such areas as: budgeting, conducting cost reduction analysis as well as reviewing operational performance This position can be considered to be more major than the position of financial analyst

- Supply Chain manager is the supervisor of materials, information, and finance because this position involves in a production process from supplier to manufacturer through wholesaler, retailer and end consumer The management of supply chain involves coordinating and integrating such flow both within and among companies Supply chain management involves coordinating and integrating these flows both within and among companies The ultimate goal

of any effective supply chain management system is consider as to reduce inventory (with products assumed to be available anytime needed)

- Operations manager defines core responsibilities and tasks of the operational manager's role Regardless of the type of organization or industry, the main purpose of an operation manager is to make a plan, to direct operations and to improve productivity and efficiency

2.2 Stakeholders matrix in 2015

Table 2.1 Stakeholders matrix of Nha Phuong Company Ltd in 2015

Lowering cost Decrease all risks, especially bad debts

Employees Labor, knowledge, skills and

competence

Increase salary, training, promotion, allowance, holiday and recognization

Distribution Logistic, retail chain,

distribution

Commission, discount, privilege, outlet

support

Customers Purchasing, capacity Quality, price, model, rebate, shipping,

after sales services

Government Legal enviroment, foreign

exchange, social, public security

Tax, employment, GDP

Associations Strengthen the linkage among

members

Membership, support, sustainability

Unions Collective, disicions, ensure

benifit muture

Activity and maintaining fee

2.3 Intern’s position

Intern’s position is as an assistant general directorwith various initiatives and objectives Primary responsibilities:

+ Assist director, other managerial staff

+ Provide training, guidance

+ Delegate duties such as typing, copying, and scanning,…

+ Hire, terminate, and train staff

+ Create schedules

+ Work with the Director to sustain and to grow programs and service

+ Manage administrative functions to ensure smooth and efficient operations of the organization

+ Supporting the organization's strategic alliances and partnership

+ Ensure the performance goals that are met and set

+ Fulfill duties delegated by director

+ Attend and preside over meetings

+ Participate in strategic planning

+ Represent the organization to the public, key stakeholders and business partner + Plan and implement the annual calendar of activities including fundraising initiatives, special events and the official administrative acts

+ Help create budgets and track expenditures

+ Create presentations for meetings

+ Especially, this intern’s position focus manage FX rate risk in Nha Phuong Company Ltd The demand for FX rate risk management was increasing gradually for recent several years

THE MISSION: ASSIGNED TASKS AND GOALS

During internships, as a trainee dealer, assistant general director and other managerial staff of the Nha Phuong Company Ltd, my duties and responsibilities in the process of managing foreign exchange in the finance Department are literally specific That is for finding out and assessing the Foreign exchange rate risk management at Nha Phuong Company Ltd The conclusions and recommendations will be at the last two chapters

3.1 My duties and responsibilities

During the internship, my tasks were to work at the financial Department as a trainee and assist director to control foreign exchange rate risk The involved works are as follows:

a To identify foreign exchange rate risk, including: Follow all import – export contracts; research the volatility of exchange rates to forecast and evaluate the extent of damage, detect potential risks in the financial operation of Nha Phuong Company Ltd

b To analyze foreign exchange rate risk, this next step is to determine the cause of the exchange rate risk, then find out preventive measures on that basis This is a complex task because the exchange rate risk comprises not only direct causes such as foreign currency supply, inflation, interest rates, balance of payments international, etc., but also indirectly cause such

as psychology, expectations of the actors who involved in the foreign exchange market, etc

c To measuring foreign exchange rate risk, the various kinds of risk make it difficult

to control all risks Therefore, there is the need to classify risks from financial businesses operation in order to understand what type of risk occurs, such as highly, moderately or non-serious consequences risk, which helps manager identify suitable measure to manage risk After that, the trainee should determine the frequency as well as severity of risk Rate is being evaluated as one of the 5 main pressure of the enterprise Hence, controlling and hedging foreign exchange rate risk is vital

d To control and hedge foreign exchange rate risk, two main methods including Fundamental and market analysis and Technical analysis

3.2 The link between the subject matter and my mission in the Nha Phuong Company Ltd

During the internship, my task is to work as a trainee and an assistant in the area of monetary and financial operation management Specifically, my tasks are to work at Financial Department of Nha Phuong Company as a trainee who work in currency market risk management team and responsible for evaluating and managing daily market risks For example: to prepare daily reports regarding the movement of monetary, currency, capital and

financial markets, regarding both domestically and internationally, analyze the movement of foreign exchange rates and interest rates It is necessary to focus on strong currency such as USD, CNY, to support other concerned sections in order to prepare the daily market risk reports, especially in the area of foreign exchange rate risks

3.3 The goal I was asked to achieve

I have been learning to control all risk from currency market, especially the volatility of currency exchange rates through the Foreign exchange rate risk management at Nha Phuong Company Ltd, specifically as follows:

a To identify the foreign exchange rate’s main risk factor

b To research and show the strength and weakness of FX, which help forecast the

fluctuations of currency rate and reduce risk from FX operation

c To offset the adverse effects of exchange rates changes

3.4 Feedback to the Nha Phuong Company Ltd

After appropriately setting up and implementing risk management measures, an assessment of the effectiveness of the exchange rate risk management is important The cost of risk management is expensive, hence it is vital to accurately assess the cost of risk management and consider them in terms of the potential costs of the decision In details, the comparative opportunity cost between the performance and non-implementation of risk management Also, Nha Phuong Company should balance the costs and benefits of risk management If there are too much operational cost while achieving negligible, do not perform

The specific criteria for evaluating the effectiveness of risk management should be clearly established, which in turn assisting internal control Department in managing the target rate risk management Hence, the effective management and strict control of the risk management process will help Nha Phuong Company Ltd restrict the impact of exchange rates

3.5 Theoretical knowledge acquired during my academic year in Master AMI that is applicable during my internship

Based on theory and concept of FX rate risk, the literature on the subject divides FX rate risk into three subjects including fundamental of financial, accounting & international financial management and financial risk management

a Inflation:

The increase in inflation leads to an increase foreign currency rate and decrease domestic currency rate High inflation also makes the purchasing power of the local currency fell against foreign currencies Inflation has a direct impact to the export - import which directly affect the