Bao Cao TTGK Ftu

Trần Minh Phương – CQ503768 – Business English 50A
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS.............................................................................i
TABLE OF FIGURES ..........................................................................................ii
EXECUTIVE SUMMARY...................................................................................iii
INTRODUCTION..................................................................................................1
1. Introduction of the research topic...........................................................1
2. Purpose and scope of the research...........................................................1
3. Research questions....................................................................................2
4. Methodology..............................................................................................2
CHAPTER 1: INTRODUCTION.........................................................................3
1.1 An overview of COMA-IMEX.................................................................3
1.1.1 History and development of COMA-IMEX................................................3
1.1.2 Functions and missions...............................................................................3
1.1.3 Organizational structure..............................................................................4
1.2. Overview of risk management in international payment at
COMA-IMEX...........................................................................................5
1.2.1 International payment reality in recent years.............................................5
1.2.2 Reality of risks at COMA-IMEX................................................................6
CHAPTER 2: THEORETICAL FRAMEWORK...............................................8
2.1 Key terms and definitions........................................................................8
2.1.1 International payment.................................................................................8
2.1.2 Risks...........................................................................................................8
2.1.3 Risks in international payment....................................................................9
2.2 Commercial risks......................................................................................9
2.2.1. Risks to sellers..........................................................................................10
2.2.2. Risks to buyers..........................................................................................10
2.3. Risks in payment (financial risks).........................................................12
2.3.1. Credit risk.................................................................................................13
2.3.2 Country risk..............................................................................................13
2.3.3. Legislative risk..........................................................................................15
2.3.4. Foreign exchange risk...............................................................................15

2.3.5 Interest rate risk........................................................................................16
2.3.6 Risk of selecting unsuitable conditions while negotiating international
payment terms...........................................................................................18
CHAPTER 3: FINDINGS AND ANALYSIS......................................................19
3.1 Business results in recent years..............................................................19
3.1.1. Reality of financial general status and business operation at COMA-
IMEX........................................................................................................19
3.1.2. Overall assessment of COMA-IMEX’s real situation of international
payment....................................................................................................21
3.2. Reality of risk management at COMA-IMEX......................................24
3.2.1. Types of risks which COMA-IMEX often faced with..............................24
3.2.2. Preventive solutions to risks which have been used so far at COMA-
IMEX........................................................................................................27
3.3. Overall assessment of risk management in international payments
.................................................................................................................. 29
3.3.1. Achievements...........................................................................................29
3.3.2. Failures.....................................................................................................30
CHAPTER 4: RECOMMENDATION...............................................................31
4.1. Suitable methods of payment.................................................................31
4.2. Suitable currency in payment................................................................31
4.3. Payment methods diversification...........................................................32
4.4. Choosing partners...................................................................................32
4.5. Human resources....................................................................................33
4.6. Relationship with banks.........................................................................34
4.7. Selecting and negotiating import/export contract conditions..............35
4.8. Strengthening COMA-IMEX’s business and position.........................35
4.9. Others......................................................................................................36
CONCLUSION.....................................................................................................37
REFERENCES
TABLE OF ABBREVIATIONS
Construction Machinery Corporation – Import Export

COMA-IMEX
Centre
L/C Letter of Credit
Incoterms International Commercial terms
The Uniform Customs and Practice for documentary
UCP
credits
WTO World Trade Oganization
ISBP International Standard Banking Practice
E/R Earning/Revenue
T/T Telegraphic Transfer
D/P Documents against payment
D/A Documents against acceptance
CIF Cost & Insurance & Freight
i
TABLE OF FIGURES
Table 1 – Business statistics at COMA-IMEX from 2009-2011.........................19

Chart 2 - Main sources of revenue at COMA IMEX (2009-2011)......................21
Table 2 – Prime cost in USD and JPY (2009-2010)............................................22
Table 3 – E/R percentage of COMA-IMEX from 2009-2011.............................22
Chart 3 - Percentage of Sales from import/export..............................................23
ii
EXECUTIVE SUMMARY
International payment nowadays is very important yet risky. Risk

management is issue which managers pay much attention to, especially managers
of import-export firms.
The purpose of this study is to detemine the financial risks and commercial
risks which COMA-IMEX, an import-export enterprise now facing with and what
feasible solutions COMA-IMEX should take to solve them.
The report is divided into four chapters.
In chapter 1, the researchers give a brief presentation on the establishment

and development of Construction Machinery Import Export Center (COMA-IMEX)
and introduction about their functions, missions and the company’s structure. In
additions, there are overview of risk management at COMA-IMEX in recent years.
In chapter 2, the researchers present theoretical framework which is

supported to the report. This chapter covers key terms and definitions of risk
management, types and classification of risks, etc.
Then, in chapter 3, by doing research of financial status and business

statement of COMA-IMEX, the researchers gives comments on reality of
import/export business at COMA-IMEX as well as COMA-IMEX’s achievement
and failures.
Finally, in chapter 4, the researchers makes some recommendations to

strengthen risk management at COMA-IMEX
iii
INTRODUCTION
1. Introduction of the research topic
In the speedy-growing economic world nowadays, it is essential that every

country integrates in order to narrow the rich-poor gap between developed and
developing countries. Pacific Asia, in the recent years, has been the most dynamic
part of the economic world. Being a nation in this area, Vietnam is not out of the
trend. One of the most important long-term strategies of Vietnam after joining WTO
is import-export promotion. Through import-export business, Vietnam will be able
to bring the world domestic goods, to gain foreign currencies, as well as to create
more jobs, and to decrease the unemployment rate, etc. It is undeniable that doing
import-export helps Vietnam speed up the economics improvement.
In the course of conducting import and export business, payment transaction
plays an extremely important role: it is essential for running the contract smoothly.
The payment transaction holds direct influences on capital turnover, reproducing
process, investment and profits of the company. However, there are many
difficulties and complex problems which happen during the payment transaction,
such as policy risk, exchange risk, credit risk, interest rate risk, etc. These problems
can only be predicted and solved with professional experiences and good technical
skills.
In particular, prevention of financial risks in business activities in general
and in international payment is an important task for all enterprises, including
COMA-IMEX. Therefore, “How to prevent financial risks in international payment
transaction?” has become a question for managers. That is the reason why I am
doing my research: “Risk management in the international payment at COMA-
IMEX”.
2. Purpose and scope of the research
The research has been carried out during my internship with helps from
managers of COMA-IMEX and under the instruction of Mrs. Nguyen Thi Thanh
Van. Due to the limit scope, the report mainly aims at:
 Analyzing general business as well as import/export business of
COMA-IMEX from 2009-2011
 Researching and analyzing risk management methods that COMA-
IMEX has been used so far
 Suggesting some solution to improve efficiency of risk management
at COMA-IMEX
1
3. Research questions
There are 2 questions which the research deals with:

1. What is the reality of risk management in international payment at
COMA-IMEX in recent years?
2. How can COMA-IMEX improve the risk management in international
payment?
4. Methodology
The research has been carried out using data from financial reports of
COMA-IMEX from 2009 to 2011, course books about international payment,
international trade and risk management from well-known scholars. Observations as
well as interviews are important method which researchers use to work on the
report.
2
CHAPTER 1
INTRODUCTION
1.1 An overview of COMA-IMEX

1.1.1 History and development of COMA-IMEX
COMA-IMEX is one of 29 members of Construction Machinery Corporation
that specializes in machinery trading, established by Decision no.1027/QD-
BXD dated 07.26.2000 from the Minister of Construction. The Construction
Machinery Corporation is a state owned enterprise established in accordance with
the Decision No.993/BXD-TCLD dated November 20th 1995 issued by the
Minister of Ministry of Construction, basing on the former Union of Construction
Machinery Enterprise founded in 1975.
The international name of the center is IMPORT EXPORT CENTRE,
abbreviated as COMA-IMEX. The centre has been registered with certification of
business registration no 313597 from Hanoi Planning Committee on Sep 5th 2000.
Currently, COMA-IMEX is located at 13th floor, COMA building, Lane Hoa
Binh 6, 125D Minh Khai, Hai Ba Trung district, Hanoi.
1.1.2 Functions and missions

1.1.2.a. COMA-IMEX’s functions
- Organize activities of sending Vietnamese experts and worker to work short
term oversea with permission from Ministry of Construction
- Import goods such as: machines, raw materials… as the market demands
- Activities involves financial leasing
1.1.2.b. COMA-IMEX’s missions
- Organize short-term courses to improve management skills as well as
technical skills and foreign languages for employers
- Negotiate and perform business contracts on foreign trade and other
economic contracts
- Labour export
3
1.1.3 Organizational structure

There is a simple structure inside COMA-IMEX with 29 personnel in total -
1 General Director, 2 Deputy Directors, functional departments with a manager and
a deputy manager of each department… as described below:
Chart 1 – Organizational Structure of COMA-IMEX
 The Board of Director including General Director and two Deputy

Directors are responsible for controlling and commanding all business activities of
COMA-IMEX.
 Accounting Department is responsible for staff salary payment and
other accounting activities; administrative business, receptions, monitoring and
maintaining working facilities... are also included in their responsibilities.
 Import/Export Sales Department advises and helps Director on
import/export business; does other works that involves import/export as required by
Director
 Labour Export Department advises and helps Director on labour
exporting by contracts
 Training Department is responsible for training and organizing
courses to provide employees with skills and knowledge before sending them
abroad. All other training-involved works are their responsibilities
4
 Labour Management Department assists Director in managing

labours working short term aboard, deals with other issues involving exported
employees’ benefits and disputes during and after their working durations
 All departments and employees are expected to do other works as
General Director requires
1.2. Overview of risk management in international payment at COMA-

IMEX
1.2.1 International payment reality in recent years
In recent years, the main goods to export at COMA-IMEX are small metallic
details such as keys, door-hinges while main goods to import are heavy construction
machineries of all kind. Importing machinery is also main source of revenue at
COMA-IMEX in latest years, due to the high price of these kinds of goods (a
contract to import one unit of construction machinery may reach the number of
US100,100 in basis value, when COMA-IMEX sell the imported machine, profit
may be in range of 5% to 10% of the contract)
In 2009, revenue from sales of imported goods is 21,612,278,060VND while
revenue from exporting is only 2,369,702,668VND, which takes only 9.88% of the
total revenue (23,981,980,728VND). Revenue from importing is 10 times more than
exporting, which means in 2009, importing is COMA-IMEX’s key business.
In 2010 and 2011, importing is still COMA-IMEX’s key revenue, but the
difference between import and export has been narrowed. In 2010, revenue from
importing is down to 15,791,573,880VND (71.73% of total revenue) but export
activities brought COMA-IMEX 6,222,191,144VND (28.27%) which means nearly
as half as revenue from importing goods. Last year (2011), both revenue from
import and export increased rapidly which led the total revenue jumped up as twice
as in 2010. Export revenue in 2011 is about one third of revenue from importing.
From the numbers above, researchers point out that COMA-IMEX’s
financial condition is quite healthy, main business – importing – brings COMA
growing and stable revenue. However, COMA-IMEX is gradually improving its
field of exporting, the unbalance between import and export is less and less, which
have been proved in the year of 2010. In 2010, revenue from importing decrease
sharply, if it was not for increasing revenue of export then COMA-IMEX cannot
reached that high total revenue
5
1.2.2 Reality of risks at COMA-IMEX

1.2.2.a Some cases of risks which COMA-IMEX often faced
On Apr 4th 2009, COMA-IMEX signed a contract no 68/COMA/FOSHAN
with trade company Foshan to import 5.000m2 of Double Low E tempered glass
CIF at Haiphong port worth 845,000.00USD. This contract was to serve the project
of Indoor Game Hall to celebrate 1000 years anniversary of Thang Long - Hanoi.
Delivery time was within 120 days from the date of opening L/C. On June 18th
2009, the Ministry of Construction declared Circular No. 11/2009/TT-BXD on
"Regulation of the management quality of products, goods and construction glass."
Among the content of regulations and circulars pointed out that:
"The importer must provide the customs authorities at the border gate all the
certificate of:
+ Assessing the control system of quality from manufacturer in accordance
with ISO 9001: 2008;
+ Assessing the quality of product samples, glass at the border gate building
must be in accordance with the quality standards setting out in this Circular;"
Indeed, circulars issued by the Ministry of Construction aims to build
technical barriers to trade (TBT). Like in other countries, there are three specific
purposes on this circular: to help protect production, protect consumers and
preserve the ecological environment in the country, and deal with the barriers of the
other countries in international trade which are more and more modern and
sophisticated (such as case of Thailand: Thailand launched the hygiene standards of
food safety, regulation and registration of labeling foods for processed foods which
are very complex and caused foreign exporters a lot of time and cost; another
example is China where there are many strict regulations on hygiene and health at
the border and ports which create many difficulties to seafood exports).
However, the contract had signed before Circular No.11 /2009/TT-BXD
promulgated so COMA-IMEX not able to respond in time the seller's ship came to
port. In additions, FOSHAN is just a commercial company who is unable to define
whether their products meet the requirement as in ISO 9001:2008 or not.
In the situation above, not only country risk that COMA-IMEX faced with
but also other commercial risk arises such as: delay in unloading goods, more
expenses for storage fee, goods are unable to import so COMA-IMEX was unable
to deliver goods in time to provide the project of Indoor Game Hall.
6
1.2.2.b Preventive solutions to risks which COMA-IMEX has used so far

Using the stable and strong currencies in international payment and using
forward contracts, futures contracts are some of preventive solutions to exchange
rate risk which COMA-IMEX often used.
In order to prevent commercial risks, COMA-IMEX often in preference to
trade with familiar, prestigious customers and partners than new ones. During
negotiation about contract’s terms, COMA-IMEX always point out that the delivery
time is as soon as possible, it is often more than 3 months since the contract is
signed.
Nowadays, due to Government’s policy of foreign currency, getting foreign
currencies to use in import/export business is a big problem to import/export
enterprises like COMA-IMEX. To have stable sources of currencies, COMA-IMEX
has to buy from outside markets and re-sell to banks, or makes some agreement
with banks so that they can provide the company with USD or JPY in time.
7
CHAPTER 2
THEORETICAL FRAMEWORK
2.1 Key terms and definitions

2.1.1 International payment
As described in encyclopedia from thefreedictionary.com (a prestigious
academic website), below is how international payment understood:
Payment made between countries, whether in settlement of a trade debt, as a
unilateral transfer of funds, for capital investment, or for some other purpose. The
reasons for such payments and the methods of making them and accounting for them are
matters of concern to economists and national governments. International debts are
settled either from accumulated balances of foreign currency or claims on foreign
currency, or by loans from creditor to debtor, or by drawing on the International
Monetary Fund, or by movements of gold. How a country balances its international
accounts is one of the most important decisions for its balance of payments.
According to Dr. Nguyen Van Tien (2011), Head of International

Department, Banking Academy, international payment is implementation of doing
payments and rights of monetary benefits which occurs through relationships of
concerned banks, due to economic and non-economic activities, between
organizations and foreign organizations, or individuals and foreign individuals, or
between a country and an international organization.
2.1.2 Risks
Risk is threat of danger, damage, injury… which can be raised during many
kind of actions in real life … In business life, breakdowns and accidents happen out
of a sudden may cause serious troubles and great loss of human or property. All
of those unexpected incidents are called risks. When talking about risks, it is often
about loss of physical assets caused by external or internal vulnerabilities.
There are some preventive methods to deal with risks:
Avoid risks: which means do nothing risky or uncertain. This method cannot
be used in business because avoiding risks equal to gaining nothing, no profit and
being rejected in competition. Since “high risk, high profit”, risks cannot be swept
out totally in doing business.
Prevent and reduce risks: by using preventive methods to minimize risks
such as fire alarm systems, labour safety… and studying rules and regulations in
economy, a company or manager will be able to reduce risks even though risks are
not disappear completely.
8
Standby funds: spend a fixed amount of money to create a fund to use in case
risks happen. Pros: companies will be self-prepared. Cons: it is difficult to raise
enough money for the funds if a great risk happens; moreover, standby funds may
leads to dead capital
Risks transfer: organizations or individuals hire professional insurance
companies to be responsible for their risks
2.1.3 Risks in international payment

During the process of international payment, or in the process of
import/export business, there are many chances that risks will happen. There are
more than one ways to classify risks in international payment as well as ways to
define and evaluate them. They can be classified by causes or by involved parties
(when different methods of international payment are considered). In Multinational
Business Finance 10th Edition, risks are divided by range of influences:
(David K. Eiteman, Arthur I. Stonehill and Michael H. Moffett, 2003)
In my report, risks will be divided by causes of risks into the two main types
of risks that import/export firms in Vietnam often faced with: Commercial Risk and
Risk in Payment (Financial risk)
2.2 Commercial risks
Definition of Commercial risk: “The risk that a debtor will be unable to pay
its debts because of business events, such as bankruptcy” (Campbell R. Harvey,
2011). This type of risk shows in every business deal, even domestic business.
9
Commercial risks in international payment are similar to risks occurs in domestic

business but more complicated and higher risky. It can be considered differently
from different sides of seller and buyers.
In the lecture of “Risk management”, Võ Hữu Khánh, MA. (2011) pointed
out and classified commercial risks very clearly as below:
2.2.1. Risks to sellers

 Mistakes in payment
 Buyer’s poor finance or inability of paying
Buyers’ inability to pay within the agreed time, when their funds run out
of money, they may ask for extension of repayment.
The payment may be compromised if the buyer can not improve their
financial situation immediately.
The legislation: in cases that the buyers can no longer claim payment, that
enterprise shall be dissolved by law. Exporter's debts are paid only after priority
debts are settled such as debts of wages, debts of social organization, unpaid taxes...
There is very little chance for exporter to recover their money that buyer owed
them, even very small amounts. Facing with the loss of the buyer's payment ability,
there are few solutions unless sellers do effective measures of safety on payment
before making commercial contracts, or buy insurance from companies who
responsible for this problem.
2.2.2. Risks to buyers

2.2.2.1. There are risks to buyer when violations of contract happen such
as:
a. Delay in shipment which affects business
Any delay caused by internal or external reasons such as delays in
shipment caused by natural disasters or accidents, or changes in shipment or
payment terms, changes in transportations…will affect business badly
b. Changes of payment terms
Lead to changes in plans and create difficulties (particularly in case
buyers pay with loans from banks). Sometimes, sellers unilaterally change the terms
of payment and force buyers to pay once for all before shipping.
10
c. Partial shipment
If not in special cases, partial shipment should not be allowed because the
drawback to this kind of shipment is its expense. The cost for transporting a great
amount of goods always be more economic than several smaller packages
d. Changes in prices
Higher prices compared to original prices in contract will lead to contract
cancel or the buyers have to suffer a loss from the higher price. In this case the
buyers may refuse to continue the contract and find another supplier but this
solution still makes delivery behindhand.
e. Risks in insurance
Lack of controlling may lead to serious breakdowns in shipment, in that
case, even the money that insurance company pay to make up for goods has reached
the highest level, it is still too low compared to real value of goods
f. Quality of goods:
Any difference in quality of good compared to what has been signed in
documents will be considered inappropriate, which causes troubles to buyers in
relationships between the buyers and involved parties (such as authorities, customs,
customers…)
g. Origin of goods
Certificate of Origin is unchangeable, which means the origin of goods
cannot be differ from one that signed in the contract.
h. Unhygienic state of goods:
In case the performance testing for safety and hygiene of goods does not
meet the medical requirement as in seller’s certificate, those goods cannot be
imported
i. Stocking costs
When the bill of lading arrives after goods did, the buyers cannot get the
delivery without documents and have to pay amount of storage fee
j. Quantity of goods
When the buyers receive less than what they demanded in contract,
obviously the lost goods cause them troubles for not gaining profit or slowing down
project progress. In addition, buyers still bear loan interest from bank.
11
If the buyers import goods in order to sell to a third party, the contract
between buyers and third party may be cancelled and buyers’ reputation will be
damaged
If the received quantity is bigger than one in contract, buyers have to pay
more taxes and sometimes get trouble by being accused of tax evasion
2.2.2.2. Reasons for commercial risks

a. Lack of information
Because of geographic distance between sellers and buyers, parties lack
of information about each other and cannot be sure about the ability of payment or
progress of contract performance
b. Lack of knowledge
Trade laws are differ from country to country, all trade laws and UCP,
Incoterms, ISBP… should be understood well in order to prevent commercial risks
from happening.
2.3. Risks in payment (financial risks)

Investopedia.com defines financial risk as “The risk that a company will not
have adequate cash flow to meet financial obligations”. Another way of
understanding is that financial risk is any risk that comes from lending people or
entity money or selling them goods without receiving money first… (Farlex
Financial Dictionary, 2011). In another words, financial risks are the probability that
an actual return on an investment will be lower than the expected return
(businessdictionary.com). Financial risks also concern one company being unable to
pay off the debt to another company.
Financial risks in international payment are economic risks happen during
international payment transactions, this is the reason why they are also called Risks
in Payment. The reasons come from relationship between partners in the operation
such as sellers, buyers, banks… or other intermediary factors
Risks in payment include unpredictable incidents that affects both sellers and
buyers badly or even banks which provide international payment services to
involved parties
12
2.3.1. Credit risk

2.3.1.1. Definition
According to Campbell R. Harvey (2011), credit risk is the risk that an issuer
of debt securities or a borrower may default on its obligations, or that the payment
may not be made on a negotiable instrument. David L. Scott explained in “Wall
Street Words: An A to Z Guide to Investment Terms for Today's Investor” that credit
risk is the risk that a borrower will be unable to make payment of interest or
principal in a timely manner (2003)
Credit risks affect business results of the company badly. When debts are not
paid partly or totally by scheduled, sellers will be in troubles, especially when credit
risks combine with exchange rate risk and risk of interest.
2.3.1.2. Reasons for credit risk:
The competitive market nowadays is among external reasons for credit risk.
Price changes, outdated technology and equipment, financial crisis or global
regression… create domino effect which affects many companies with difficulties,
losses or even bankruptcy.
Internal reasons are lack of information and poor management and
administration skills. If a seller or buyer does not have a thorough grasp of partner’s
financial situation and ability of payment or does not know well about international
payment and the project they are doing, then credit risk is unable to be avoided.
2.3.2 Country risk

2.3.2.1. Definition
Political situations and economic policies, foreign exchange management
policies of a country may change from time to time. Those changes affect both
sellers and buyers; sometimes they prevent buyers from getting payment and sellers
from getting delivery.
General understanding of country risk is probability of loss due to economic
and/or political instability in the buyer's country, resulting in an inability to pay for
imports (businessdictionary.com). Below is another definition of country risk in
Farlex Financial Dictionary (2011):
The risk that a foreign government will significantly alter its policies or other
regulations so that it negatively impacts the business climate in that country or the
returns on a particular industry, company, or project. Macro-country risk deals with
policy changes that harm, say, exporters or foreign-owned businesses in general,
while micro-country risk implies that a government will deliberately target a
particular company or way of making a living. For example, the political climate of
13
a country in which defense contractors operate may turn against one particular
company because of its perceived excesses or against defense contractors in
general. This may cause the government revoke contracts for one or more defense
contractors
Recession and currency crisis of a country or an area play an important role

to international payment of any import-export company. They are unexpected
situations which will lead to the reduction or loss of liquidity of the contracts signed
earlier. Besides, bank account embargo and blockade applied to accounts in foreign
banks make company’s international payment more difficult, delayed or even lose
ability to pay. When there are country risks, there are often credit risks, interest
risks… go along with them and make them more serious.
Country risks to buyers happen when buyers want to pay sellers but
unexpected economic or politic incidents appear which make the buyers’
Government forbid them to pay foreign currencies to foreign companies, or
imported goods are listed as not subjected to customs clearance.
Country risks to sellers happen when there are changes in policy of foreign
trade or customs in sellers’ country. The sellers are ready to export but upheavals
happen such as tax for exporting increases or the to-be-exported goods are
forbidden to export which make exportation postponed.
2.3.2.2. Reasons for country risk:
 Conflicts of race, political parties, religion threaten the stability of a country.
 Demonstrations, strikes, riots, wars.

 The problem of foreign debt forces the importing government to use strong
measures to forbid foreign payment or transfer foreign currency abroad.
 Bad situations such as foreign currency reserves at a low level and the
national balance of international payments face the heavily deficit force the
Government of the importing country to take action to stop foreign payments
immediately.
 The economic international embargo on importing country puts all
international activities and the Nostro accounts of the importing countries
under strict control, or even be blocked so that banks cannot pay for foreign
countries.
 Foreign exchange management policy of importing countries suddenly
changes, foreign exchange policy is tighten or forbidden in payment which
poses risks to importers and their banks.
14
2.3.3. Legislative risk

2.3.3.1. Definition
Legislative risk is a risk occurs when there is a dispute or claim coming from
the involved parties. The issue raised is that which country's court is going to handle
the case and of which country will the law base on.
Definition of legislative risk:
Risk that a change in legislation could have a major positive or negative effect on an
investment. For instance, a company that is a large exporter may be a beneficiary of a trade
agreement that lowers tariff barriers, and therefore may see its stock price rise. On the other
hand, a company that is a major polluter may be harmed by laws that stiffen fines for
polluting the air or water, thereby making its share price fall.
(John J. Capela, Stephen Hartman, 2011)

2.3.3.2. Reasons for legislative risk:
Since there are differences in legal environment and the laws between parties
and parties, no matter what international documentary credit selected which adjusts
payment method selected (UCP-600 or not), in various countries this transaction
was also adjusted and dominated by legal system of the local country. UCP and the
laws of the countries altogether create a legal framework for L/C transaction of
commercial banks in general when participating in international payment. However,
the applying levels of each country are different up to the law of that country.
Indeed, when there is a conflict between a term in L/C (no matter it follows
UCP or not) and legal law of a country, the national legal law will be followed and
disclaim UCP. Or another way of saying: the applying of UCP into L/C does not
deny legal law and cannot prevent the Court from applying national legal law
(Dr.Nguyen Van Tien, 2010)
2.3.4. Foreign exchange risk
2.3.4.1. Definition
This type of risk often happens in L/C which requires fix kind of currency.
When there is a change about exchange rate of that currency, sellers or buyers will
get loss. If the price of fixed currency increases then the buyers will suffer a loss,
vice versa, the sellers will get loss. Below is definition of foreign exchange risk,
according to David L. Scott (2003):
The risk that the exchange rate on a foreign currency will move against the position
held by an investor such that the value of the investment is reduced. For example, if
an investor residing in the United States purchases a bond denominated in Japanese
yen, a deterioration in the rate at which the yen exchanges for dollars will reduce
15
the investor's rate of return, since he or she must exchange the yen for dollars. This
is also called exchange rate risk.
2.3.4.2. Reasons for foreign exchange risk:

There are some factors that affect changes of exchange rates, which lead to
risks of foreign exchange
 Status of the balance of international payments influences directly the supply
and demand for foreign currency, through direct effects on the exchange rate.
 The purchasing power of the currency and the inflation rate in the concerned
countries.
 The differences of interest rate between countries, between the domestic
currency market and international currency market.
 Some other factors such as political shock, social shock, impacts of natural
disasters, war, psychological sensitivity.
2.3.5 Interest rate risk
2.3.5.1. Definition
Definitions of interest rate risk are listed below:
Interest rate risk is “The chance that a security's value will change due to a
change in interest rates.” (Campbell R. Harvey, 2011)
The risk that interest rates will rise and reduce the market value of an investment.
Long-term fixed-income securities, such as bonds and preferred stock, subject their
owners to the greatest amount of interest rate risk. Short-term securities, such as
Treasury bills, are influenced much less by interest rate movements. Common stock
prices are also affected by changes in interest rates, although the linkage is less
clear than is the case with debt securities and preferred stock.
(David L. Scott, 2003)

The risk of loss due to a change in interest rates. Interest rate risk is important to
transactions like interest rate swaps. In such a transaction, the party receiving the
floating rate will receive a smaller amount should the floating rate decrease.
Interest rate risk is also important to bonds; if interest rates raise, the prices of
bonds fall. This affects the secondary market for bonds; for example, if one
purchases a bond with a 3% interest rate and the prevailing rate rises to 5%, it
becomes difficult or impossible to resell the bond at a profit. Finally, interest rate
risk is important to project finance. If interest rates rise, funding may not be
available for a new loan for a project that has already started.z
(Farlex Financial Dictionary, 2011)
16
In the international payment, the import-export enterprises always face with

interest rate risk. Changes of interest rate in the market can affect the value of cost
and business income. In other words, it affects directly to international payments of
the business.
In fact, these businesses often have to consider finding funds from
commercial banks, but when the interest rate for import-export financing from
commercial banks changes, it affects all calculations about cost, income then
business performance will change.
Besides, the import-export enterprises must participate in credit relationships
of import-export trade regularly with their partners. So when there is exchange rate
volatility in the market, there will be negatively influence to the payment operations
of the companies
In each specialized case, depending on if the business is giving or receiving
sponsor, interest rate fluctuations can affect the present value of income or expense
line of the business, the effectiveness and value of businesses' import-export
contracts
Interest rate risk affects the value of bonds more directly than stocks, and it is
a major risk to all bondholders. As interest rates rise, bond prices fall and vice versa.
The rationale is that as interest rates increase, the opportunity cost of holding a bond
decreases since investors are able to realize greater yields by switching to other
investments that reflect the higher interest rate. For example, a 5% bond is worth
more if interest rates decrease since the bondholder receives a fixed rate of return
relative to the market, which is offering a lower rate of return as a result of the
decrease in rates
2.3.5.2. Reasons for interest rate risk
Interest rate always changes as the market is going up or down. No matter
what kind of interest rate that enterprises are using is fixed rate or floating rate, a
new policy of interest rate can change the rate anytime to come up with changes in
market.
For examples, when banks are in need of cash, lending interest rate often be
higher than usual (this year is 14%), and when the cash sources is redundant,
interest rate may reduce to 12-13%/year. At the moment, interest rate which banks
apply to companies is very high, about 25%/year. The higher the interest rate is, the
more chances that companies may face with interest risks.
17
2.3.6 Risk of selecting unsuitable conditions while negotiating

international payment terms
2.3.6.1. Definition
In import-export firms, the international payments is the last stage of export-
import operation, it closes a cycle of buying and selling goods and services. This is
a complex business which is very complicated, risks may happen at any time, even
out of a sudden. Therefore, in commercial contracts, unless the parties specifically
agree on all the terms, especially terms of payment, disputes can easily occur in
international payments.
Moreover, international payments terms and the shipment conditions are very
similar: how the payment is conducted, which steps including in payment; payment
deadlines, what will happen with late payment, etc. Therefore, during the
negotiations, sellers and buyers have to set the payment terms: monetary conditions,
place of payment, payment terms and payment methods. If not be careful, these
conditions are very easy to cause financial risks in international payments of the
company.
2.3.6.2. Reasons for risk of international payment term:
Risk is caused by the poor foreign trade and international payments skills of
involved parties, sellers, buyers or even banks are not well-informed of the strict
requirements of the L/C, the uniform customs and practice for Documentary Credits
(UCP 600), leading to errors in the transaction process from the drafting and signing
the contract until the making documents and payment stage. Cannot forget to
mention the professionalism, technical skills, attitude of participants in
performance... may not as good as require.
18
CHAPTER 3
FINDINGS AND ANALYSIS
3.1 Business results in recent years
3.1.1. Reality of financial general status and business operation at COMA-
IMEX
*Unit: million VND

No.10: person
(Source: Financial annual report 2009, 2010, 2011)
No. 2009 2010 2011

1 Revenue from sales 23,981 22,013 44,762
1.1 Revenue from the sale of imported goods 21,612 15,791 35,295
1.2 Revenue from the sale of exported goods 2,369 6,222 9,466
2 Revenue from financial operations 13 75.5 130
3 Other revenue 571 1,887 1,186
4 Prime cost 21,592 16,119 35,363
5 Administrative and other operating expenses 2,819 7,380 9,915
6 Earnings before tax 155.1 476.9 799.4
7 Tax 1,369 333 1,495
8 Assets 14,263 17,401 11,975
9 Equity 905 1,596 2,249
10 Average number of labours 16 20 26
11 Average monthly salary per labour 4.5 5.8 7.0
Table 1 – Business statistics at COMA-IMEX from 2009-2011

In 2009, the Export Center has successfully completed the tasks assigned by
the Corporation, and has contributed a great revenue in total revenue of the
Corporation, with revenues reaching nearly 24 billion, paid State budget of 1.3
billion, pay off old bank debt of 5.7 billion. In addition to contributing in sales,
thanks to the professional proficiency of international payment, delivery methods
and Customs procedures, Import and Export work has contributed to better
performance of international bidding contracts which the Company won such as
CD2 CanDon package, electrical package of four 110KV transformer stations of the
EVN and other export contracts. The Center has gradually implemented the tasks
assigned by the Corporation. COMA-IMEX has strongly aims to improve the
business of equipment. Besides, COMA-IMEX tend to join bidding projects to
19
increase margins, reduce risks while keeping looking for customers to exploit the
cheapest and fastest sources to serve the bidding works of the Corporation as well
as the business of the Center better.
2010 marks a difficult and challenging year to COMA-IMEX. Sales revenue
in 2010 fell slightly, due to sales decrease in imports, the cost is also reduced,
suggesting that may be due to the import goods amount reduced because the
economic situation in 2010 is still in a recession causing customers reduce their
consumption demand. But the most prominent reason is the fluctuations in
exchange rate of JPY and USD:
The dollar rose sharply in 2 years of 2008 and 2009. In January 2010, the
rate VND/USD fell slightly, standing at 18,479 VND/USD. This decrease of the
dollar is due to the temporary "excess" of foreign currency, which starts from other
increasing sources such as foreign investment (both direct and indirect, official fund
of development assistance), remittances. Besides, corporations, large state-owned
companies sell foreign currency to banks. The "surplus" is the result of series of
massive policies which State Bank promulgates. On 11/02/2010, the State Bank
increased the average exchange rate of interbank from 17,941 VND/USD to 18,544
VND/USD in order to encourage corporations, large state-owned companies to sell
foreign currencies to the banks, improve the foreign currency situation which is
stressful. Earlier, on January 18th, State Bank declares Decision No.74/QD-NHNN
about drastically reducing the reserve requirement in foreign currencies for credit
organizations. This decision has raised about $500 million of capital for commercial
banks used for lending in the market.
About the JPY, early 2010 seems to be optimistic when EIU (Economist
Intelligence Unit) predicted that in 2010 the average exchange rate between USD
and JPY will be approximately 180 USD. However, in 2010 the exchange rate
between two currencies have risen sharply, refer to JPY selling price of
Vietcombank on July 9th has risen to 217.28 VND, which rose about 8% compared
to 31/12 / 2009 - considered to be a very strong growth.
Fluctuations in the dollar and yen exchange rates mentioned above are the
main causes leading to revenue in 2010 only reached 91.79% compared to 2009,
including import sales reached 73% compared to 2009.
In terms of administrative and other operating expenses, the primary cause
leading to increased costs by 261.72% compared to 2009 is increasing number of
staff. In 2009, COMA-IMEX receives more employees, the average income of
workers increased by nearly 129% compared to 2009. In addition to the above
reasons, the factor affected most to the rising cost in 2009 is the handling and
maintenance of goods in stock from the previous year. COMA-IMEX had to spend
over 2 billion VND to maintain machinery to increase the quality of goods and
speed up sales, so that COMA-IMEX could pay bank loans earlier. Therefore,
20
enterprises in 2010 reached 2.241 billion profit, up 107% compared to 2009.

Revenue in 2011 increased by 2 times compared to 2010, as can be showed
in the chart below:
Chart 2 - Main sources of revenue at COMA IMEX (2009-2011)

The year 2010-2011 marked the great leap of COMA-IMEX in total revenue
(with total revenue from sales of 2011 is double than ones in 2010). The remarkable
increase sales in 2011 shows that there may have been no solution such as to
recover the supply, and at the same time demand increased (construction industry's
recovery which leads to increase in demand for construction machinery). All of
these situations are reasons for the increased number of COMA-IMEX's contracts in
both quantity and value). Total assets in 2011 decreased sharply (due to selling
some of unused assets). The fact that capital's growing show the strong financial
statement of COMA-IMEX, the company is quite self-control. The number of
average labor increases show that that the company is expanding. The profit
increase resulted in increase in monthly salary per labour
3.1.2. Overall assessment of COMA-IMEX’s real situation of international
payment
Regarding the import and export business, in 2009 COMA-IMEX has signed
and implemented 34 contracts with foreign partners to import machinery for
construction industry with a total value of $367,023 (approximately or over 6.5
billion USD) and ¥66,153,248 (equivalent to over 13 billion USD). Most equipment
is imported from countries such as Japan, Taiwan, Germany, and USA…
21
However, export earnings of the business are limited, just over 2.3 billion
(approximately $132,800), of which 30% is revenues from labour export. Total
value of the 4 export contracts of details for assembly, merge, merge ceilings -
Component metal galvanizing parts for fitting and similar suitable for ceiling - only
worth $88,500, equal to 8.04% of total value of imported goods. One reason is that
exported products of enterprises got low value, the labor content is not high, and the
product is still rudimentary and simple.
Revenue from importing is COMA-IMEX’s key source of revenue, although

from 2010 till now, exporting has been attached more importance but the increase
speed of exporting is still slow and it is difficult to catch up with the rate of
importing improvement. Thanks to the help of import sector, without it total
revenue from sales of 2011 cannot have the big leap of more than 44 billion VND.
In 2010, the rise of foreign currencies has created favorable conditions for
enterprises to increase export revenues, reaching 262.57% compared to 2009.
Prime cost 2009 2010

USD 367,023.00 252,257.00
JPY 66,135,248.00 44,104,381.00
Table 2 – Prime cost in USD and JPY (2009-2010)
Revenue from sales in 2010 was slightly smaller than ones in 2009, but
prime cost was also reduced by 31% to 33%. So in the over view, COMA-IMEX
was not only achieved good operation result but also found some ways to reduce
cost (cheaper suppliers) and increase earnings. The excellent business performance
was also recorded in the table below, which show the E/R percentage of COMA-
IMEX. Looking at the statics, researchers point out that in period of 2009 to 2011,
COMA-IMEX is a successful and efficient business
2009 2010 2011

Total revenue 24,567,006,134 23,977,020,434 46,079,140,280
Earnings before tax 2,099,681,353 2,241,005,448 4,075,931,956
E/R 8.55% 9.35% 8.85%
Table 3 – E/R percentage of COMA-IMEX from 2009-2011
In the last 2 years, revenue from selling exported goods is about one fifth of
total sales revenue, which is considered quite stable. The growth of value of export
contracts is about 150% to 250% per year. Export sector provides COMA-IMEX
with amount of foreign currency for other import business.
22
However, since the value of export contracts occupies the greater revenue
from sales, which is 3 or 4 times much more than value of import contract, foreign
currency gaining from exporting is not enough to provide import sector . COMA-
IMEX always has to find other sources of foreign currency. The question of where
to find the sources is a big issue.
Revenue from sales of import/export

2009 2011
2010
Chart 3 - Percentage of Sales from import/export

The main export area of COMA-IMEX is small mechanical details while
import field deals with machines, constructing materials. Since importing is
COMA-IMEX’s main sector of business, most financial risks that COMA-IMEX
might have faced are risks to buyers. There are commercial risks to buyers that
often happen to COMA-IMEX such as: delay in shipment, changes in payment term
or unexpected stocking cost…
In the past, sometimes COMA-IMEX used payment methods such as T/T,
D/A(Documents against acceptance) or D/P (Documents against payment).
However, these kinds of method has brought many risks to COMA-IMEX such as:
very slow payment when using D/A or D/P, and in this method banks only act as
middleman in charge of collecting, so they are not responsible for payment from
buyers. Nowadays, the T/T method of payment is only used for traditional reliable
customers, but also very rare. Payment methods that primarily use at COMA-IMEX
is L/C even though this payment method is expensive and take more time, it's still
safer.
23
3.2. Reality of risk management at COMA-IMEX

3.2.1. Types of risks which COMA-IMEX often faced with
The business environment of COMA-IMEX still comes up against many
difficulties. In recent years, there are more and more companies in our country
joining the business of import-export like COMA-IMEX, therefore the competition
is very sharp. This whole screen has affected import-export business activities of
COMA-IMEX. Besides, since COMA-IMEX's customers come from many
different markets such as Europe, Japan, Taiwan, Korea, China, etc., COMA-IMEX
often have to deal with the various political changes, the incompetence of the
international legal system which makes it more difficult for the international
payment.
After several interviews that researchers conducted during the time working
at COMA-IMEX, information and examples of situation have been record in order
to serve the report. There are some types of risks which COMA-IMEX most faced
with, according to interviews’ results:
a/ Foreign exchange risk
As we know, any company working in import-export business often has to
deal with the unforeseen changes of exchange rates, COMA-IMEX is not excluded.
The changes of exchange rate are unavoidable and make COMA-IMEX's accounts
receivable and liabilities changes along. So that the planned money to gain to pay
out will different to the originally expected money. The difference arises out of
expectation is result of changes in exchange rate. In fact, at COMA-IMEX, all
business forms must use many different currencies, then changes in exchange rate
will influence the prices of imported or exported goods in VND. At COMA-IMEX,
the changes in exchange rates of USD and Japanese Yen are most important, since
these 2 currencies are main currencies in international payment.
Sample situation:
On Apr 1st 2009, COMA-IMEX signed a contract with Japanese partner –
KOMATSU to buy 01 hydraulic excavator code PC200-6 whose CIF value at
Haiphong port is 11,200,000.00JPY. Delivery time was among 90 days since L/C
opened. At that moment, exchange rate between JPY and VND is 205.91 (according
to Vietcombank). On July 9th 2009, COMA-IMEX paid for the document worth
11,200,000.00 JPY. However, exchange rate of VND/JPY is no longer 205.91 but
217.28. Therefore, COMA-IMEX suffered from a loss of 127,344,000.00VND due
to the difference in exchange rate.
(from Mr.Nguyen Hai Cuong’s answer in the interview)
24
b/ Interest rate risk

Like many other import-export companies, in order to expand and maintain
the business of imported and exported goods, COMA-IMEX not only merely seek
for funding credit from commercial partners but also have to grant trade credit to
them in some cases. Import-export firms always in need of money, especially
foreign currency to deal with big contracts. If not, it will be hard to maintain
turnovers, even in some cases COMA-IMEX may lose customers to competitors.
On the other hand, if any delay or problem happens in such conditions, interest rate
risk and credit risk in the funding process is unable to avoid.
To COMA-IMEX, in the course of doing business, besides its own equity
they must raise the capital from outside. So in some cases when COMA-IMEX
providing credit support for its partners, if the partners cannot pay back in time or
do not pay under the agreement, then COMA-IMEX will face dead capital and on
the other hand will suffer an additional amount of interest due to postponed
payments from the partners, not taking into account the fluctuation of exchange
rates.
Sample situation:
In Nov 2009, COMA bid a contract to provide Hydraulic Cylinders for
Intake Gate of No. 4 Sesan hydropower project worth 6.3 billion VND
(approximate 348,326 USD). In order to have required conditions to join bidding,
COMA-IMEX was confirmed to borrow from Vietinbank with real interest of that
moment, which means no more than 12% per year (This is the interest rate for
enterprises borrowing from banks). In Mar 2010, COMA-IMEX paid the imported
L/C worth 315,000.00USD and be under debt from Vietinbank with 315,000.00 x
19,100.00 VND/USD = 5.630.310.000 VND. By that time, interest rate raised from
12% to 20%.
The reason for increased interest rate is from Government’s decision: on Feb
th
26 2010, the State Bank officialized lending rates in range of 16 to 20% through
Circular No. 07/2010/TT-NHNN about negotiated interest rates applying to medium
to long term credit.
From the day of L/C payment to the day COMA-IMEX received money
from customers, COMA-IMEX had to suffer from an arisen interest money of 6
months, which is much more than they had planned:
(5.630.310.000 VND x 20% : 12 months x 06 months) - (5.630.310.000
VND x 12% : 12 months x 06 months) = 225.212.400 VND
(from Mr.Nguyen Hai Cuong’s answer in the interview)
25
c/ Country risk
The unstable environment economy these years brings companies all over
the world many unexpected situation caused by policies from Government. For
examples, when some kinds of goods seem to be redundant in the domestic market,
Government may release new policy in which assigns that all those kinds of
redundant goods must not be imported or only be imported under strict criterions
and special conditions. In that cases, all import contracts which signed earlier to buy
goods from abroad will be in danger if the goods are on list.
Sample situation:
29/10/2009, COMA IMEX export a EU34,000 contract of Component metal
galvanizing parts for fitting and similar suitable for ceiling to France. Goods
covered in wooden boxes. All the boxes have to be fumigated before importing -
according to France’s legal law. METHYL BROMIDE was used to fumigate all
COMA-IMEX’s containers when being on board. During the shipment, in Nov
2019, France’s Government declared that Methyl bromide was forbidden due to its
harms to people. This sudden change caused COMA IMEX a lot of troubles (such
as re-export, unforeseen storage fee, delay in payment, double freight...)
This country risk costs COMA-IMEX an amount of EU1,800.
(from Mr. Nguyen Quang Huy’s answer in the interview)
d/ Other commercial risks

Although maritime transport brings import-export many advantages, this
kind of shipment still have some disadvantages such as delay in shipment,
unexpected incident such as nature disasters happening anytime, day of landfall
cannot be predicted exactly…Those are particularly of shipping which may lead to
commercial risks to buyers.
Traveling on ocean for a long time may affect goods’ quality and create loss
to import firms like COMA-IMEX. In additions, due to changes happening in some
cases about payment or policy, COMA-IMEX may suffer from an amount of
storage fee which is out of predication.
Besides commercial risks starting from external reasons, there are many risks
may happen from selecting unsuitable payment conditions or errors in contracts.
With the main type of international payment is Letter of Credit (L/C), these kinds of
risks often caused by inexperienced staffs who are in charge of preparing L/C and
editing contracts
26
Sample situation:
On Mar 20th 2009, COMA-IMEX signed a contract to buy 500 sets of
ceramic lavatory, price of 370$ per set, FOB Haiphong port, using irrevocable L/C.
Delivery time was 3 months after the day of signing contract. However, by the time
of delivery, partner refused to pay for the goods with the reason of quality. They
decided that it would take times to examine the quality of goods and said the
payment would be made after 5 months.
In the case above, not only COMA-IMEX suffered loss from activity of
capital holdings from the partner but also be delay in taking payment, waiting for
court’s judgments. During the time conflicts occur, both revenue and prestige of
COMA-IMEX were damaged
3.2.2. Preventive solutions to risks which have been used so far at COMA-
IMEX
3.2.2.1. Country risk
Due to specific situations of COMA-IMEX, managers and staffs say that the
country risk is not really worrisome and does not take much cares in risk
management at COMA-IMEX. Therefore, there is no usual preventative methods
used to deal with country risks. Generally, country risks only happens in the
countries which are at war or with natural disasters, or the countries whose
economy is in recession. However, all of the situations mentioned above will affect
the liquidity of the companies in that country, so that COMA-IMEX will not export
goods to these markets to avoid risk.
However, although it is rare, sometimes COMA-IMEX still faces with
country risk and it is often political risk. Policy of an import or export country may
changes from time to time and until when being gotten into troubles, COMA-IMEX
often use some provisional solutions to solve them, which means there are no
preventative solution to avoid country risks from happening.
Back to case in 1.2.2.a in this report (page 4), the provisional solution to
politic risk in the mean time is asking for the help from Government. COMA-IMEX
is a state-owned company whose business are mainly to serve the state, so that
solution is feasible. When the goods arrived in Hai Phong port, COMA-IMEX had
to write to the Ministry of Construction and relevant agencies to allow company to
import goods. Because Indoor Game Hall is an national important building, it is a
part of 1000 years of ThangLong’s Anniversary project, after receiving documents
from COMA-IMEX, the Minister of Construction grant COMA-IMEX the
permission to import goods.
27
3.2.2.2. Exchange rate risk

Forward contracts, option contracts, futures contracts, swap contracts or
cross currency swaps are most commonly methods which is used to prevent
exchange rate risks in the world. However, the Vietnam State Bank allows banks to
provide only 2 two products: trading foreign currency futures and currency swaps,
interest rate swaps in which VND is the basic currency. However, there are limits of
these products such as very short term in trading and VND is not a currency with
high transference. Therefore, it is difficult for banks to provide the products with
term longer than 3 or 6 months, while loan term of COMA-IMEX is usually over 6
months, or even 1 year. The term does not match so that only part of rate risks of the
business can be insured
As stated in the introduction, for many years after the establishment of
enterprises, COMA-IMEX's main business is import and export construction
machinery and equipment. Particularly, COMA-IMEX often import used
specialized construction equipment such as excavators, bulldozers... originating
from Japan. Due to the fact that business capital of COMA-IMEX is limited and
base on specifics of construction machinery business, COMA-IMEX has signed
import contracts of deferred payment (usually in the range from 6 to12 months)
with familiar customers who have long relationship for many years. With these
contracts, COMA-IMEX often convinces customers to swap to other major
currencies such as USD and EUR on the basis of the original contract is JPY. The
fluctuations of these currencies are usually lower and under stricter management of
state than VND.
When exporting to Europe market, the main currency to be used in payment
is EUR because EUR is a strong foreign currency with great chance of rising price
in comparison with VND. When importing or exporting goods from other markets,
COMA-IMEX often uses USD as the main currency in payment due to its safety:
low risk rate, popular and more stable than other currencies.
A real situation of exchange rate risk that COMA IMEX has gotten into and
has found the way out: On April 1st 2010, COMA-IMEX signed a contract with V-
trac Holdings Ltd. to buy 01 Caterpillar crawler excavator code 320D made in
Japan with CIF value at Hai Phong port is 10,800,000.00 JPY. Delivery time was
within 90 days since the day L/C was opened. At that moment, exchange rate
between JPY and VND is 205.91 (according to Vietcombank). In order to prevent
risks, COMA-IMEX signed futures contract with issuing bank to buy JPY after 90
days to pay for the mentioned L/C with price of 208.56 VND/JPD. On July 9 th 2010,
COMA-IMEX paid for the document worth 10,800,000.00JPY. By that time,
exchange rate of JPY sold at 217.28 (Vietcombank). Therefore, COMA-IMEX was
successful avoid the loss of (217.28 – 208.56) x 10,800,00.00 = 94,176,000.00
VND.
28
3.2.2.3. Interest rate risk

On May 10th 2010, COMA-IMEX signed a contract no. COMA-XNK60402
with the Quyet Thang Investment and Construction Company to provide 09 Doosan
excavator - Model SOLAR 220LC-6. The contract worth 801,000.00 USD,
delivery in Lao Cai within 90 days from the day signing the contract and 10%
deposit. In contract no.COMA-XNK60402, COMA agreed to pay the customer 90%
of contract value right after COMA-IMEX receive notice from the bank to pay for
the documents from L/C. But this solution is applicable only to valued clients
(traditional clients) of COMA-IMEX and L/C for imported equipment must be
opened at banks specified by the customer.
3.2.2.4. Risk of selecting unsuitable conditions while negotiating
international payment term
a/ In Exporting: To ensure the safety of receivables when exporting. In the
documentary of L/C method, COMA-IMEX often note that discount vouchers is
payment method in use. After delivery, COMA-IMEX will prepare the necessary
documents as stipulated in the L/C, draw bills... to issuing bank by means of
immediate payment or later payment, then export all above documents to the
correspondent bank on the transaction, for the purpose of selling bills of exchange
to the bank. After checking whether documents in accordance with the terms of the
L/C or not, advising bank will buy (i.e. discount) all drafts from COMA-IMEX to
receive a refund payment later from the issuing bank. COMA-IMEX will spend
some amount of money at a certain discount rate to banks so that COMA-IMEX can
get money back faster and safer. This is a solution that COMA-IMEX often use to
reduce risks of receivables from customers.
b/ In Importing: To minimize risks in international payments by means L/C,
when importing, COMA-IMEX usually learn about the real business operation of
the suppliers. However, due to fact that the import of goods take place in different
countries, finding information about partners is very difficult. The reason is limited
skills and financial ability of COMA-IMEX, so it is hard to avoid the risk of
importing goods from abroad.
3.3. Overall assessment of risk management in international payments
3.3.1. Achievements
In general, import-export business activities at COMA-MEX meet many
difficulties, factors concerning business environment is also limited.
In spite of many difficulties, COMA-IMEX was aware of the impact of risk
management to international payment and many preventive solutions to avoid risks
have been studied and put into in practice
29
In fact, in every single professional activities such as contract negotiation,

selection of payment terms, collecting information about partners, promotion of
international trade, COMA IMEX always find this information to achieve positive
results. L/C method has been used in almost all import/export business of COMA-
IMEX and has been proved effective and safe. Futures contracts, currency options
have minimized the risks of exchange rate, etc.
3.3.2. Failures
3.3.2.1. From COMA-IMEX
Risk management at COMA-IMEX mainly based on manager’s experiences
and decisions. Actually, there is no specific group, department or expert on risk
management at COMA-IMEX to advise Director about risk preventions. Methods to
prevent risks of all kinds at COMA-IMEX are often provisional solutions, which are
appeared after there are problems. Due to all of these reasons, export/import
business result is not as good as planned.
Because COMA-IMEX still faces many difficulties in market research
activity, the company is only able to collect brief information about foreign partners
via banks or some domestic ones. Therefore, COMA-IMEX may choose wrong
trading partners in some cases.
3.3.2.2. From government

Legal corridor for banking in general and for exchange activity in particular
isn’t complete, asynchronous. Banking law has been in effect from, however the
issue of decree and other law documents performing law is slow, asynchronous, and
imperfect. Documentary operations in Vietnam haven’t had any law documents
adjusting the relationship between participants. That brings many disadvantages for
Centre in handling dispute about documentary operations.
Vietnamese documents assigning the import and export, tariff, customs
haven’t been stable, and a sudden change impacts indirectly on international
payment operations, because the stability of economic policy in the export-import
sector plays an important role in international payment.
30
CHAPTER 4
RECOMMENDATION
4.1. Suitable methods of payment

COMA-IMEX should use the most suitable payment methods for different
kinds of imports/exports and different kinds of customers.
For goods that are not saleable, newly introduced goods which need to find
new market, payment methods that favor importers should be used to attract
purchasing such as deferred payment, remittance, collection, or acceptance against
documents.
For processed goods, goods in barter agreement, or goods which delivered
regularly on periodic should be applied special documentary credits payment
methods, for example: revolving letter of credit, reciprocal letter of credit.
For goods that are merchandised through intermediate agents or transit …
COMA-IMEX should use payment methods like back to back letter of credit,
assignable letter of credit…
Agricultural products or foods which have short expire duration and require
special maintenance should be used precaution letter of credit to ensure contract
commitment between both parties.
Reciprocal letter of credit method should be used with customers who have
frequent business with COMA-IMEX and have periodic good delivery to save cost
and time.
To customers in whom COMA-IMEX has trust or long term relationship,
COMA-IMEX should be use simple payment methods to save cost and time, such
as T/T or D/C method.
To new customers, without much knowledge about each other, COMA-
IMEX should use documentary letter of credit, with special document to ensure the
company’s benefit, although these kind of methods is costly, more complicated and
require a lot of time, the risks are reduced.
4.2. Suitable currency in payment.

Generally, almost all import/export companies use the US dollar as payment
currency for international business. But in recent years and in the present, with the
effect of economy crises and political unrest, the US dollar is going through an
unsettle period , with exchange rate changes frequently, therefore affect export
31
activities and reduce remittance effect. As a result, to constrain damage, arise cost
by changes from monetary market, COMA-IMEX should use suitable payment
currency in each period and use exchange rate guarantee clause. In the present
international monetary market there are relatively stable currency like the Euro, the
Japanese Yen or the British pound beside the US dollar.
4.3. Payment methods diversification.

Choices of payment methods depends on many factors, some of which are
mentioned below:
 Mutual knowledge between seller and buyer
 The value of the deal.
 The market position of each side , or which party has advantages on the
signing and executing the contract.
In reality there are many different international payment methods, each has
its own advantages and drawbacks, therefore it has to be used proficiently in
accordance with the situations to benefit the business.
COMA-IMEX should carefully consider each method to choose and
negotiate on using the most suitable and flexible payment method to not only save
cost but also ensure the liquidity, efficiency and safety.
4.4. Choosing partners

The result of international whether good or bad depends a lot on ability and
good deeds from banks and partners, especially when T/T or D/C methods are used.
In many cases, import/export enterprises have been tricked because they are lack of
information about foreign partners or they do not chose partners carefully.
Therefore, when choosing partners to sign an import/export contract,
COMA-IMEX must collect as much information as possible about foreign partners,
such as: financial health, legislatorial status and prestigious history of the partner
companies. All the information which collected must been re-confirmed to ensure
the payment ability of contract.
32
4.5. Human resources

Foreign languages, professional knowledge of foreign trade and international
payment standard of COMA-IMEX’s staffs must be improved in order to catch up
with the competition in import/export business
Nowadays, it is good news that more and more companies take part in
import/export business. However, being inside this business without enough good
knowledge and experiences, companies may face with many risks, losses or even
bankrupts. Therefore, it is essential that import/export firms must improve their
skills of professional transactions as well as language skills.
When joining the field of import/export, COMA-IMEX must have
import/export specialists or employees who know clearly about this field. All of
those staffs have to be trained about foreign trade, international commercial law and
law of international payment. Their knowledge of Incoterms, UCP, URC, partners’
laws, shipment and international payment terms must be updated from time to time,
so that when negotiating a contract, they can achieve agreement that more benefits
to the company. All of those employees must be skillful as well as honest in doing
business.
Since COMA-IMEX is a company specializing in import/export business
with different foreign partners, there should be a Marketing Department which is in
charge of studying about partners’ markets, financial status and business statements.
They also have to learn about commercial laws and other rules from the partners’
country, as well as catch up with changes in those policies.
Within a short time, it is very difficult to form a group of skillful people to
join the Marketing Department. Therefore, hiring advisors who are specializing in
international trade and payment to help in important contracts with dangerous cases
of risks.
Employee treatment policy should be built in order to encourage skillful
staff, policy of rewarding or punishing must be strict so that COMA-IMEX can
keep and attract more excellent staff to improve their abilities, knowledge, and
complete their works well.
33
4.6. Relationship with banks

Relationship between COMA-IMEX and banks is very important, it affects
directly to methods and terms to pay through banks and also have a strong influence
to COMA-IMEX’s operational efficiency.
For examples, when conducting a contract using L/C, COMA-IMEX has to
pay a security which is sometimes equal to 100% of contract’ value. However, if the
relationship between COMA-IMEX and banks is good enough, the rate of security
payment will be lower and sometime banks can finance 100%. When there are
mistakes in L/C, banks will advise company to edit quickly, save more time and
expense. It will be easier for COMA-IMEX to get suggestions from banks during
the operation of L/C if the relationship is good.
In case of importing, if goods come before documents do, COMA-IMEX
may draw up an application to demand banks to stand security so that company can
import the goods immediately. Vice versa, if the relationship between COMA-
IMEX is not going well, it is hard for the firm to ask for security from banks or have
to pay an amount of security to import goods.
Moreover, when payment is performed through banks, import/export
enterprises like COMA-IMEX always want to be sponsored by banks to get capital.
Particularly, banks’ sponsorships are among document discounting, export
financing, loan to support importing… In addition, to have a good relationship with
banks means to have stable sources of foreign currencies, which is a troubled issue
to COMA-IMEX recently
As a position of banks, they often collect information about clients,
markets… so they know well about foreign partners, international markets. With
these enormous sources of knowledge, it will be very helpful if banks offer expert
advices to COMA-IMEX in field of international payment, such as:
 Providing information about prestigious, liquidity of foreign banks
whose relationship are among banks in Vietnam. Providing information about their
payment history and prestigious histories.
 Giving advices to COMA-IMEX in selecting methods of payment as
well as choosing reimbursing banks and preventive methods to avoid commercial
risks that may happen.
 Supporting COMA-IMEX to open clean documents, which is fit with
L/C’s contents and requirements in order to ensure the payment ability of L/C.
 Advising COMA-IMEX to consider unprofitable terms that are
required in L/C by foreign banks so that the shipment will be paid.
34
 Advising COMA-IMEX to fix serious errors in documents and

solutions to cases in which exported goods are denied to receive and pay
 Advising COMA-IMEX when signing a contract and suggest certain
terms to put in L/C so that COMA-IMEX can avoid general terms which may be
misunderstood or be exploited by partners
Consequently, it is obvious that banks are not only middle organizations
which are in charge of paying in international payment but also have important
influence. Risks which happen to COMA-IMEX can also affect banks’ benefits and
prestige, that’s why banks always support COMA-IMEX willingly and also provide
useful information during the operation of payment. COMA-IMEX should take full
advantages of banks in international payment and performance of import/export
business to avoid risks and maximize profit.
4.7. Selecting and negotiating import/export contract conditions
Among preventive methods using in international commercial in general, and

in international in particular, there is being cautious in contract negotiating, contract
signing and conditions selecting in order to ensure the fluent of delivery. On the
other hand, the exporters get their payment after delivery on agreement.
Strict regulations and conditions in contract will ensure both parties’ good
performances in every step of doing business while reducing flaws, avoiding risks
and saving time. However, being strict does not mean being too complicated, but to
choose suitable solutions to create safety condition for the contract executing.
Wrong choice in international commercial conditioning will affect directly to

companies’ foreign trading activities, and the first and foremost being suffered will
be payment activities, because they have influence on all the processes of the
business and contract regulations. Therefore, COMA-IMEX has to be wise, careful
in negotiating contract, to make sure the business will be transparent and quick in
executing, while there are still high chance of safety, and good conditions for
payment.
4.8. Strengthening COMA-IMEX’s business and position
Growing the business operation, expanding the market, increasing

company’s market reputation domestically and internationally are duties which
COMA-IMEX’s managers must do in the longer term
35
Enterprises whose position and reputation are not high in international

business usually have to accept unfavorable demands, contract conditions and
especially unfavorable payment clauses from the foreign counterparties. Because of
that disadvantages, enterprises need to grow their business, expand market, build
reputation to take advantages in negotiation, take control in contract negotiation,
and avoid risks in international payment terms. COMA-IMEX is not excluded.
4.9. Others
Apart from all of the above recommendation, enterprises should use methods
to prevent foreign currency risks such as:
 Bilateral contract.
 Set up exchange rate exposure prevention fund.
 Use terminal contract, future contract, currency option contract,

currency swap.
36
CONCLUSION
One of the most challenging factors in international trade is that sellers and
buyers come from different countries, which creates many difficulties of languages,
laws, geographic distance, different kinds of currency, etc. All of the mentioned
obstacles lead to risks in international trading in generally and in international
payment in particular. Among them, financial risks such as credit risk, foreign
exchange risk, interest rate risk, country risk and commercial risks are stand out.
Understanding the consequence of risks and loss in international payment and the
importance of risk management in avoiding risks, researchers write the report “Risk
management in the international payment at COMA-IMEX”
Based on basic knowledge about international payment, international trade
and risk management from many references, the report has focused on reality and
solutions to improve risk management in international payment at COMA-IMEX.
Due to the limit time for researching and internship, my report has inevitable
shortcomings. I hope to receive comments from my instructor, readers and friends
to make my report better.
37
REFERENCES
Vietnamese
1. Võ Hữu Khánh, MA (2001). Bài giảng Quản trị rủi ro, ĐH Công nghiệp
Tp HCM.
2. Nguyễn Văn Tiến, GS.TS (2011), Giáo trình Thanh toán quốc tế & Tài
trợ ngoại thương, NXB Thống Kê.
3. Nguyễn Văn Tiến, GS.TS (2010), Hỏi-Đáp Thanh toán quốc tế, NXB
Thống Kê.
4. COMA-IMEX, Báo cáo tài chính (2009-2010), Hà Nội.
5. COMA-IMEX, Báo cáo tài chính (2010-2011), Hà Nội.
English
6. Capela, J. J., & Hartman, S. (2000). Dictionary of international business
terms (2nd ed.). Hauppauge, N.Y.: Barron's Educational Series.
7. Dictionary, Encyclopedia and Thesaurus - The Free Dictionary. (n.d.).
Dictionary, Encyclopedia and Thesaurus - The Free Dictionary.
Retrieved April 19, 2012, from http://www.thefreedictionary.com/
8. Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2004). Multinational
business finance (10t. ed.). United States: Addison-Wesley.
9. Scott, D. L. (2003). Wall Street Words: An A to Z Guide to Investment
Terms for Today's Investor. Boston: Houghton Mifflin Harcourt.
10. Harvey, C. R. (2011). Dictionary of Money and Investing. New York: The
New York Times.

Bao Cao TTGK Ftu

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Bao Cao TTGK Ftu

Hochgeladen von

Copyright:

Verfügbare Formate

Trần Minh Phương – CQ503768 – Business English 50A

2.3.4. Foreign exchange risk...............................................................................15

Construction Machinery Corporation – Import Export

Table 1 – Business statistics at COMA-IMEX from 2009-2011.........................19

International payment nowadays is very important yet risky. Risk

The report is divided into four chapters.

In chapter 1, the researchers give a brief presentation on the establishment

In chapter 2, the researchers present theoretical framework which is

Then, in chapter 3, by doing research of financial status and business

Finally, in chapter 4, the researchers makes some recommendations to

1. Introduction of the research topic

In the speedy-growing economic world nowadays, it is essential that every

There are 2 questions which the research deals with:

1.1 An overview of COMA-IMEX

1.1.2 Functions and missions

1.1.3 Organizational structure

Chart 1 – Organizational Structure of COMA-IMEX

 The Board of Director including General Director and two Deputy

 Labour Management Department assists Director in managing

1.2. Overview of risk management in international payment at COMA-

1.2.2 Reality of risks at COMA-IMEX

1.2.2.b Preventive solutions to risks which COMA-IMEX has used so far

2.1 Key terms and definitions

According to Dr. Nguyen Van Tien (2011), Head of International

2.1.3 Risks in international payment

(David K. Eiteman, Arthur I. Stonehill and Michael H. Moffett, 2003)

Commercial risks in international payment are similar to risks occurs in domestic

2.2.1. Risks to sellers

2.2.2. Risks to buyers

2.2.2.2. Reasons for commercial risks

2.3. Risks in payment (financial risks)

2.3.1. Credit risk

2.3.2 Country risk

Recession and currency crisis of a country or an area play an important role

 Demonstrations, strikes, riots, wars.

2.3.3. Legislative risk

(John J. Capela, Stephen Hartman, 2011)

2.3.4.2. Reasons for foreign exchange risk:

(David L. Scott, 2003)

(Farlex Financial Dictionary, 2011)

In the international payment, the import-export enterprises always face with

2.3.6 Risk of selecting unsuitable conditions while negotiating

*Unit: million VND

No. 2009 2010 2011

Table 1 – Business statistics at COMA-IMEX from 2009-2011

enterprises in 2010 reached 2.241 billion profit, up 107% compared to 2009.

Chart 2 - Main sources of revenue at COMA IMEX (2009-2011)

Revenue from importing is COMA-IMEX’s key source of revenue, although

Prime cost 2009 2010

2009 2010 2011

Revenue from sales of import/export

Chart 3 - Percentage of Sales from import/export

3.2. Reality of risk management at COMA-IMEX

b/ Interest rate risk

d/ Other commercial risks

3.2.2.2. Exchange rate risk

3.2.2.3. Interest rate risk

In fact, in every single professional activities such as contract negotiation,

3.3.2.2. From government

4.1. Suitable methods of payment

4.2. Suitable currency in payment.

4.3. Payment methods diversification.

4.4. Choosing partners