How is the exchange rate of foreign currency determined? What are the methods of foreign currency transactions in Vietnam?
What are the types of foreign currency transactions in Vietnam?
Pursuant to Clause 6, Article 2 of Circular No. 02/2021/TT-NHNN on guidelines for foreign currency transactions on foreign currency market by credit institution authorized to make foreign currency transactions as follows:
Definitions
In this Circular, the terms below are construed as follows:
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6. “foreign currency transactions” includes foreign exchange spot transaction, foreign exchange forward, currency swap, and call option and put option transactions.
The term “giao dịch ngoại tệ” (“foreign currency transaction”) used in this Circular is synonymous to the term “giao dịch hối đoái” (“exchange transaction”) used in other legislative documents promulgated by the Governor of the State Bank.
7. “foreign exchange spot transaction” (hereinafter referred to as “FX spot”) means an exchange of an amount of a currency for another currency at the exchange rate at the transaction time where the payment is made within 02 working days after the transaction date.
8. “foreign exchange forward” (hereinafter referred to as “FX forward”) means an exchange of an amount of a currency for another currency at the exchange rate at the transaction time where the payment is made within 03 working days after the transaction date.
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Thus, foreign currency transactions includes foreign exchange spot transaction, foreign exchange forward, currency swap, and call option and put option transactions.
In which, “foreign exchange spot transaction” (hereinafter referred to as “FX spot”) means an exchange of an amount of a currency for another currency at the exchange rate at the transaction time where the payment is made within 02 working days after the transaction date.
“foreign exchange forward” (hereinafter referred to as “FX forward”) means an exchange of an amount of a currency for another currency at the exchange rate at the transaction time where the payment is made within 03 working days after the transaction date.
How is the exchange rate of foreign currency determined? What are the methods of foreign currency transactions in Vietnam?
How is the exchange rate of foreign currency determined?
Pursuant to Article 5 of Circular No. 02/2021/TT-NHNN on currencies and exchange rates as follows:
Currencies and exchange rates
1. Each authorized credit institution shall stipulate the foreign currencies to be traded.
2. The spot exchange rate between VND and USD of an FX spot or FX spot within a currency swap shall be determined based on the official rate announced by the State Bank on the transaction date and within the margin decided by the State Bank.
3. The forward rate between VND and USD in an FX forward or an FX forward within a currency swap shall be agreed upon by the parties thereto but not exceed the exchange rate determined based on:
a) The spot exchange rate on the transaction date;
b) The difference between two existing interest rates which are the refinancing interest rate announced by the State Bank and Federal Funds Target Rate. If the Federal Funds Target Rate is within the margin, the lowest interest rate in the margin shall apply.
c) Term of the transaction.
4. Exchange rates between VND and other currencies other than USD and between foreign currencies with each other in foreign currency transactions shall be agreed upon by the parties thereto.
5. Authorized credit institutions must publish spot exchange rates between VND and other currencies when making transactions with clients at their foreign currency transaction locations and on their official websites (if any). Authorized credit institutions shall make transactions with their clients at published exchange rates, unless otherwise agreed upon by both parties.
According to the above provisions:
(1) The spot exchange rate between VND and USD of an FX spot or FX spot within a currency swap shall be determined based on the official rate announced by the State Bank on the transaction date and within the margin decided by the State Bank.
At the same time, Article 2 of Decision No. 2730/QD-NHNN in 2015 stipulates the official exchange rate between VND and USD as follows:
1. The official exchange rate between VND and USD is determined with reference to any fluctuation in the weighted average rate occurring on the interbank or international forex market for several currencies of countries that have established major commercial, lending or borrowing, or debt repayment, or investment relationship with Vietnam, macroeconomic and currency balances, and in line with to monetary policy goals.
2. “Official exchange rate between Vietnam dong and US Dollar" in this Decision is “the interbank average exchange rate between Vietnam dong and US Dollar”.
The official exchange rate between VND and USD will be regularly published on the website of the State Bank.
Also according to Article 1 of Decision No. 1747/QD-NHNN in 2022, spot exchange rate between VND and USD of authorized credit institutions is stipulated as follows:
Banks, non-bank credit institutions and foreign bank branches which are permitted to conduct foreign exchange trade and provide foreign exchange services (hereinafter referred to as “permitted credit institutions”) shall impose spot exchange rate between Vietnam dong and foreign currencies according to the following principles:
1. Regarding US Dollar: the spot exchange rate shall not exceed ± 5% of the central rate disclosed by the State Bank of Vietnam applicable to the specific transaction day.
2. Regarding foreign currencies: the spot exchange rate shall be determined by permitted credit institutions.
3. The difference between the buying rate and the selling rate shall be determined by permitted credit institutions.
(2) The forward rate between VND and USD in an FX forward or an FX forward within a currency swap shall be agreed upon by the parties thereto but not exceed the exchange rate determined based on:
+ The spot exchange rate on the transaction date;
+ The difference between two existing interest rates which are the refinancing interest rate announced by the State Bank and Federal Funds Target Rate. If the Federal Funds Target Rate is within the margin, the lowest interest rate in the margin shall apply.
+ Term of the transaction.
(3) Exchange rates between VND and other currencies other than USD and between foreign currencies with each other in foreign currency transactions shall be agreed upon by the parties thereto.
What are the methods of foreign currency transactions in Vietnam?
Pursuant to Article 7 of Circular No. 02/2021/TT-NHNN on transaction methods as follows:
Transaction methods
1. Foreign currency transactions shall be carried out directly or via transaction means, including phones and electronic means.
2. Parties to foreign currency transactions made via electronic means and phones shall agree upon and take responsibility for these transactions, ensuring security, safety, protection of data messages and confidentiality as per the law. Data messages may hold the same value as documents if they meet the requirements in Article 12 of the Law on E-Transactions. Foreign currency transactions made by electronic means must comply with regulations of the Law on E-Transactions and relevant guiding documents.
3. For transactions made via the phone, authorized credit institutions must stipulate and inform their partners of phone numbers that may be used for these transactions. Phones must have a voice recording function and contents of transaction agreements with partners must be extractable for the purpose of transaction confirmation and internal control by credit institutions and dispute settlement (if any).
Thus, foreign currency transactions shall be carried out directly or via transaction means, including phones and electronic means.
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