9/14/2018

INTERNATIONAL PAYMENT

NGUYỄN THỊ QUỲNH NGA

Email: nguyenthiquynhnga.cs2@ftu.edu.vn

INTRODUCTION
Credit value: 3 credits
Total student study time: 90
hours
45 contact hours
teaching in the class
 discussions & directed leaning
group assignment
visiting presentation
 mid-term test
 45 private study hours

Aims
To introduce students a conceptual overview of the
international payment.
To provide students the basic knowledge of foreign
exchange market and the balance of payment.
To take a practical approach and to present an overview of
the fundamentals of the financial instruments which are
used in the international payment.
To give students the basic principles of methods of
international payment, focusing on the popular ones (TT,
collection, letter of credit)

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Indicative contents
Section 1: Introduction to International Payment
- Chapter 1: Overview of International Payment
- Chapter 2: Foreign Exchange control regime of Vietnam
Section 2: Foreign Exchange Rate and Balance of Payment
- Chapter 3: Foreign Exchange Rate
- Chapter 4: Balance of Payment
Section 3: Instruments of International Payment
- Chapter 5: Bill of Exchange and Promissory Note
- Chapter 6: International Check and Bank card
Section 4: Methods of International Payment
- Chapter 7: Non-documentary method of payment
- Chapter 8: Documentary method of payment
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Lecture sequence
Lecture Topics
1. Introduction to International Payment
2. Foreign Exchange control regime of Vietnam
3-5 Foreign Exchange Rate
Balance of Payment
6-7 Bill of Exchange and Promissory Note
8 International Check and Bank card
9 Mid-term test
10-15 Methods of Payment
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Visiting presentation

Indicative learning resources

1. Indicative Basic Reading List:
 Dinh Xuan Trinh (2009/2011/2013), International
Payment, Labor Publishing House
 Nguyen Tien Hoang and co-authors (2013), International
commercial transactions,VNU-HCM Publishing house
 Nguyen Xuan Minh (2011) Import- Export and
international payment,VNU-HCM Publishing house
 Nguyen Van Tien (2011), International Payment, Statistical
Publishing House

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Recommended additional readings

2. International Laws and Conventions:
 Uniform Law for Bill of Exchange- ULB 1930
 Uniform Law for Cheques- ULC 1931
3. National Laws:
 Law on assignment instruments (has been effective from 01 July 2006)
 Ordinance on foreign exchange control dated 13 Dec 2005 (has
been of full force and effect as from 1 June 2006).
 Decree providing regulations for implementation of ordinance of
foreign exchange control
 Circular No22/2015/TT-NHNN on supply and utilization of cheques
 Circular No. 19/2016/TT-NHNN dated June 30, 2016 of the State
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Bank of Vietnam on bank card operations

4. International Rules and customs:

 UCP 600 2007, ICC: Uniform customs and Practice for

Documentary Credits (2007 Revision, ICC Publication No600, In
Force as of July 1, 2007
 ISBP 681 2007=> ISBP 745, 2013: International Standard Banking
Practice for the examination of documents under documentary
credit, subject to UCP600-2007 ICC
 eUCP 1.1: supplement to UCP 600, regulating e-payment
 The Uniform Rules for Collection(URC) 522, 1995, ICC
 The Uniform Rules for Bank to Bank Reimbursement under
Documentary credit- (URR) No 725, ICC, 2008
 The Uniform Rules for Demand guarantee (URDG), No 758, 2010.
 International Standby Practices, ISP 590, 1998.
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Assessment
 The formal assessment of this course will be conducted
through attendance, one closed book mid- term test and a
closed book examination.
 Attendance 10%
 The closed book mid-term test 10%
 Group assignment 20%
 The closed book examination 60%
 The students’ participation and performance in classroom
activities will be highly appreciated and scored by adding
to the mid-term test result.

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INTRODUCTION TO
INTERNATIONAL PAYMENT

Chapter 1:
OVERVIEW OF INTERNATIONAL PAYMENT

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OVERVIEW OF INTERNATIONAL PAYMENT

 I. Definition of International payment

 II . The participants in the international payment
 III . Payment currency
 IV. Time of payment
 V. Instruments of payment
 VI . Methods of payment
 VII . Features of the international payment

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OVERVIEW OF INTERNATIONAL PAYMENT

1. What is international payment?

- The countries have jointly defined the elements
of the payment mechanisms between countries
such as regulations on participants, currency,
instruments, methods of payment and credit
support tools. These elements constitute the
mechanism of int’l payments between countries.

- Int’l payment is payment activities between

residents and nonresidents of a country by using
currencies to one or more transactions party
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2. Participants
- Central Bank : on behalf of government signed the
Agreement
- Commercial banks
- Organizations, individuals

3. Payment currency
- Is the one used to settle the payment for contracts.
- The same to the price currency or a different one
- Common currency:

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In terms of usage range

• Issued by Central bank,
National
• Legal and domestic currency,
currency • cash and credit money.

• Common currencies of economic unions or agreement

Int’l currency (Bretton Woods, Jamaica, SEV, EU, ALBA)

World
• Is accepted and used by all countries in the world
currency:

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In terms of convertible ability

• free convertible currency
Free convertible
• total free convertible USD, GBP, EUR, JPY + partial free
currency convertible currencies: TWD, PHP, THB, KRW, IDR,..

• transferable currency
Transferable
currency
• => only be transferred from one account to another, not
allowed to cash draw

Clearing
• Clearing currency
currency
• => Is used in clearing account, not allowed to transfer or
cash draw
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In terms of existing forms

• paper money
Cash • coins

Credit
currency • Money in bank account

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In terms of aims of currency usage

- Account currency (Price currency)
- Payment currency
In terms of usage level in int’l payment
- hard currency
- weak currency

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Factors affecting the choice of settlement currency

- Market status (Seller’s or Buyer’s)

- Level of usage
- Customs of currency usage
- Common currency of one region, unions

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4. Time of payment

There are some possibilities of time of payment:

- Advance payment
- At sight payment
- Deferred payment
- Combination of different time

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4. Time of payment
 Advance payment
• As credit support to exporter
• As a guarantee to conduct contract (Performance bond)

 At sight payment
• COD: Cash on Delivery
• COB: Cash on Board
• Cash on receiving shipping docs
• Cash after receiving shipping docs from 5-7 days
• Cash on receiving goods

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4. Time of payment
 Deferred payment: is payment made after delivery of
the goods.
It may be made x days after:
• delivering goods, but not loading on the means of
transport.
• loading on the means of transport
• receiving shipping docs (more than 5-7 days)
• receiving goods

 Combination of different time:

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a.Formula of discount for goods

Discount per one unit is
calculated as follows: In which:
 DP: Discount price/unit
 PA: Payment in advance
 R: Interest rate
PA {(1+R)N – 1}  N: time of advance
DP = payment
Q  Q: Quantity

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b. Performance bond

- Shorter time for advance payment (10-15 days)

- Provision in contract: x days before shipment
- Interest rate usually is waved

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a. Performance bond: applied cases

Case 1: Ex. doubts Import’s ability of payment
Performance bond = interest (supposed that Ex has to
bear this amount of money when he borrow) + Penalty
 PA = TA [(1+R)N – 1] + D

• PA: Payment in advance

• TA: total amount (= bank loan)
• PA: R: Interest rate
• N: time of advance payment
• D: Damage or penalty

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b. Performance bond

Case2: In doubt of canceled contract by Importer

(contract price > market price)
PA = Q (CP – MP)

CP: contract price

MP: market price
Q: Quantity of goods
PA: Payment in advance amount
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4.2. At sight payment

a. Cash on Delivery
Payment is made after the Ex delivers the goods at he
named place, not loading on the means of transport.
Some terms of delivery are used: EXW, FAS, DAF, FCA
- Commercial documents:
Warehouse receipt of delivery (ExW);
Receipt for shipment B/L (FAS);
Com. Invoice certified by Importer
AWB, RWB, Post receipt

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4.2. At sight payment

b. Payment is made after the Ex delivers the goods at he
named place, not loading on the means of transport
(train, truck, vessel) .
In reality: vessels are most common.
- Shipping docs:
Shipped on board B/L (signed by: as carrier, as master,
as agent for, on behalf of…)
“Received for shipment B/L” noted On board, Shipped
on board or Laden on Board.

- Ex. should inform about the shipment to Im. after

making delivery.
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4.2. At sight payment

c. Cash on receiving shipping docs: Payment is made
after the Im. receives the shipping docs (at sight
L/C, DP,…)
- Shipping documents, commercial documents:
- Commercial invoice
- B/L, AWB, RWB, Ocean Bill…
- Insurance Policy/Certificate
- Certificate of Quality/Quantity/Origin
- Test/Inspection Certificate
- Packing list
- ….

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c. Cash on receiving shipping docs

Required docs must be regulated in detail: number of

docs, kind of docs, mode of sending docs, place and
conditions of presenting docs.
Modes of sending docs:
- attached to cargo , through the carrier
- Sending by post
- Sending to import agency in ex. country
- Via bank (most common and safest )

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c. . Cash on receiving shipping docs

Conditions of receiving docs:

- Without condition: named B/L, send docs
directly to Importer
- With condition: D/P, D/OTC…
Time of docs presentation:
Shipping docs:
- Commercial invoice
- B/L, transport documents
- Insurance policy
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- C/O, C/Q. packing list, inspection certificate

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d. Cash at x days (5-7 days) after receiving

shipping docs (D/P x days)

- Same as above (c), D/P x days is used i.o D/P

Cases:
- Goods with various kinds, complicated
specifications, great number
- Bank can make delivery of docs to Im. (except for
B/L)
- Order B/L are applied

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4.3. Deferred payment

Payment is made at x days after shipment

 Shipment date (B/L date ):
- Stipulated in contract (if payment not based on
shipping docs)
- Stipulated in shipping docs (if payment based on
shipping docs.
B/L: on board/ shipped on board: date of issue
B/L: received for shipment: date of notation on
board.
# B/L: date of issue
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4.3. Deferred payment

Payment is made at x days after docs.

presentation: (D/A: Docs against acceptance)
Payment is made at x days after goods receiving
 after due date of goods guarantee

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4.4 Mixed terms of payment

- Case: complicated goods, great deal of goods
- Advance 5%: 30 days after signing date of
contract
- 5%: before first shipment
- 5%: after last shipment
- 80%: after installation
- 5%: after guarantee due date

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Terms of payment
Article 4: PAYMENT TERM
The Buyer shall make the payment by Bank Telegraphic
Transfer (TT) 100% of the valued of the contract in advance
within 05 working days after signing this Contract but before
receiving goods.
The currency of payment is in United Sates Dollar (USD),
payable in favor of:

• A/C name: Petrovietnam Ca Mau Fertilizer Company

• A/C No. (USD): 019.137.031.5147
• Swift code: BFTVVNVX019
• Bank name: Joint Stock Commercial Bank for Foreign Trade ofVietnam,
Camau Branch,Vietnam
• Bank address: 3-4C, Au Co St., Camau City, Vietnam.
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Article 5: REQUIRED DOCUMENTS

 Bill of Lading (1 original + 3 copies)

 Commercial invoice (1 original + 3 copies)
 Packing list (1 original + 3 copies)

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5. Instruments of Int’l payment

 Bill of Exchange/Draft/

 Promissory note

 Check/Cheque

 Bank card: Payment card/ Credit card/Debit card

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Bill of exchange: Template

BILL OF EXCHANGE (1)
 No:……(2)….. ……………,(4)……………

 For:……….(3.1)…………..

 At…..(5)…. sight of this First Bill of Exchange

(second of the same tenor and date being unpaid),
pay to the order of …..(6)….. the sum of….. (3.2).

 Drawn under L/C No… (or Commercial invoice No…)

 To:………(7)………. (Name and address of Drawer)

 …………………………. …………(signed)…..
 …………………………. (8)
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Tính chất của Hối phiếu: tính trừu tượng

--> Sẽ k có info về seller/buyer, value of contract, rules of Incoterms
Hối phiếu = unconditional letter (mệnh lệnh đòi tiền vô điều kiện)

người mua
issuing bank L/C: thì người trả tiền not importer, but the issuing bank
Open account/ Collection: người trả tiền importer

người bán
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Check:
- Bank Check:
- Commercial check: yêu cầu ngân hàng trả cho người nhận check
Promissory Note
PROMISSORY NOTE (1)
No:…(2)…………..
For: …..(3.1)………. …………….., (4)………..
At………..(5)….sight of this Promissory note, we promise to pay
to the order of ……….(6)………… the sum of
………(3.2)…..
Place of payment: (Name and address of issuer)
…..(7)……….. …(signature)…
(8)

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Method of payment hình thành dựa trên 3 yếu tố:

- Payment
6. Methods of payment - Goods
- Documents
3 cái trên cái nào đi cùng với nhau, cái nào tới trước cái nào, sẽ hình thành method of payment khác nhau

In terms of attached In terms of bank role What factors can affect the choice of method of payment?
docs - Power of bargaining, Customer relationship
- Risk of price changes

Clean payment Intermediary of payment:

Non-documentary methods:
• Remittance
- Open account
• Open account
- Remittance • Collection
- Clean collection
- Demand guarantee
Commitment to pay: Bank makes payment
Documentary methods:
• Demand guarantee
• Documentary collection • Standby L/C
• Documentary L/C • Letter of credit
• Authority to Purchase • Authority to Purchase
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Methods of payment

Definition: are all conditions and manner recommended for

Commercial bank to transfer proceeds between residents
and non –residents of one country.

Figure 1: Payment Risk Ladder

Exporter: Least Secure → Less Secure → More Secure Most Secure
→

Importer: Most Secure ← More Secure ← Less ← Least Secure

Secure

Open Account Collection Documentary Advance

Clean Collection -> Credits Payment
DA -> DP

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RISK COMPARISON – TRADE TERMS

INTERNATIONAL METHODS OF PAYMENT

Exporter Risk Importer Risk

Open Account
Clean Collection
Documentary Collection(Time)
Documentary Collection (Sight)
Letters of Credit (Time)
Letters of Credit (Sight)
Payment in Advance

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Buyer Takes ? ?? Seller Takes

All the Risk All the Risk

Letter Documents Documents

of Against Against Open
Pre-Pay Credit Payment Acceptance Account

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Who Should Take the Risk?

FACTORS AFFECTING THE SELECTION OF

PAYMENT METHODS

 - Trust degree between both parties

 - Capital ability of each party
 - Partner relationships
 - The competition of each party/Market status
 - The political/economic situation of importer’s country
 - Requirement of foreign exchange control in each countries
 - The volume and type of business transaction

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7. Typical features of international payment

operations

 Refer to textbook (Đinh XuânTrình, 2011)

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CHAPTER 2:
Foreign Exchange control regime of Vietnam

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Contents:

 Foreign exchange

 Governing scope

 Subjects of application

 Policy on foreign exchange control of Vietnam (=>Aims)

 State management to the foreign exchange activity

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1. Foreign Exchange

Definition:
- In textbook: Foreign Exchange (FX) includes all payment
means that are used in international settlements
(financial assets)
- In dictionary: all financial instruments issued in foreign
currencies are used in int’l settlement and credit.

In general the FX comprises:

- Foreign currencies
- Financial instruments denominated in foreign currencies
- Standard Gold
- The domestic currency held by non-residents
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1. Foreign Exchange
Pursuant to Ordinance on foreign exchange No. 28/2005/
PL-UBTVQH11 dated 13 December 2005 (in short:
Ordinance on foreign exchange 2005), FX consists of:

• Foreign Currency
• Means of payment in foreign currency
• Valuable papers denominated in foreign currency
• Gold
• Currency of the Socialist Republic of Vietnam (VND)
một số VND đặc biệt sẽ được coi là ngoại hối
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HongKong dollars, Macao, Island

1.1 Foreign Currency - HK belongs to China, Macao belongs to Thailand, Island belongs to UK. They
are not countries but territories but still have separate currencies.

(1)- Currency of another country/Currencies of other

nations and territories
- or the European common currency
(3) - or other common currencies which are used in
international and regional payment
=> hereinafter referred to as foreign currency
(3) SDR: foreign currencies to all countries (as it doesn't belong to any countries)
5 đồng tiền chủ chốt của thế giới
- USD
- EUR
- JPY
- GBP: bảng Anh (Great Britain pounds)
- CHF: francs thụy sĩ (Swiss francs) - Confoederatio Helvetica francs
--> Hiện nay CHF được thay thế bởi CAD (đồng Canada)

Trong giao dịch thương mại quốc tế, normally dùng các đồng tiền mạnh, vì sự
chênh lệch tủ giá trước và sau giao dịch ít hơn --> ít rủi ro hơn
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Cross check: không rút tiền, chỉ dùng để gửi tiền vô ngân hàng
1.2 Means of payment in foreign currency
 check/cheques
 payment card (credit card/debit card/bank card)
 Bills of exchange
 Promissory notes
 and other means of payment;
1.3. Various types of valuable papers denominated in
foreign currency:
- Government’s bonds,
- Corporate bonds,
- Term bonds,
- Shares
- and other valuable papers (deposit certificates
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- Được mang tối đa 300g vàng (mang ra khỏi VND) dưới dạng vàng trang sức và mỹ nghệ (không được
1.4 Gold: chỉ những "vàng" dưới đây mới được coi là ngoại hối. mang vàng khối thỏi,...)
- Với những giấy thông hành thông thường qua biên giới (not passport), qua Laos, Cambodia, chỉ được
- Gold in the state foreign exchange reserves mang vàng trang sức
not only individuals,
- Gold in the oversea accounts of the residents; not org, entities,...
- Gold in form of block, bar, grain, piece in case of being
carried out of and into the territory ofVietnam
1.5 Currency of the Socialist Republic of In international sales contract, but use VND, this case VND is considered as foreign currency.

Vietnam
- in case of being remitted into and out of the territory
ofVietnam
- or being used in the international payment

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Foreign exchange

 The subject of trade in FX market

 Commonly trading currencies in FX market: USD,
EURO, JPY, GBP, CHF, AUD, CAD, NZD
 The 5 majors: USD, EUR, JPY, GBP, CHF
 Biggest portion: USD

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Current regulations on the carrying of gold by

individuals on exit or entry

 Circular No. 11/2014/TT-NHNN dated March 28, 2014 (came

into force from 15/5/2014), of the State Bank of Vietnam
regulating on the carrying of gold by individuals on exit or
entry, replaced Re 1165/2001/QĐ-NHNN dated 12/9/2001
 Vietnamese and foreign individuals leave or enter Vietnam with
passports are not permitted carrying ingot gold, raw material gold. In
the case that foreign individuals who carry into Vietnam ingot gold, raw
material gold must complete the procedures for depositing at the
customs warehouse, which they would receive back and bring with
them out of the country, or complete the procedures for sending
abroad and bear all related expenses that arise.
 Vietnamese and foreign individuals leave or enter Vietnam with
passports carry jewelry gold, fine-art gold articles in a total
amount of 300 (three hundred) grams or more must declare such to
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the customs.

2. Subjects and scope of regulation on FX

 Stipulated in Ordinance on foreign exchange 2005

 Governing scope:
This Ordinance shall govern the foreign exchange
activities in the Socialist Republic of Vietnam.
 Subjects of application
1. Organizations, individuals, who are residents, non-
residents engaging in foreign exchange activities in
Vietnam.
2. Other subjects relating to the foreign exchange
activities.
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3. Aims of FX control
- to facilitate and ensure lawful benefit of the
organizations, individuals engaging in FX activities,
making contribution to the economic development;
- performs the target of the national monetary policy to
improve the convertibility of VND;
- attain the target that only VND is used in the territory
of Vietnam;
- implement commitments made by VN in the route of
international economic integration,
- to intensify the effectiveness of the state control for
foreign exchange activities and perfect the system of
foreign exchange control of Vietnam.
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Exchange rate control regime in Vietnam

 From Jan 4, 2016, State bank of VN (SBV) applied the new

mechanism for E/R control as central rate, i.o interbank
average E/R
 Central rate is based on interbank average E/R, E/R
fluctuations situations of FX market of 8 currencies: USD,
THB, EUR, CNY, SGD, JPY, KRW, TWD.
 Fluctuation level: 3%.

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4. FX activities
Capital transaction shall be a transaction of
capital transfer between the resident and
nonresident in following areas:
a) Direct investment;
b) Investment in valuable papers
c) Foreign borrowing and debt payment
d) Foreign lending and debt collection;
dd) Other forms of investment in accordance with
provisions of applicable laws of Vietnam.
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4. FX activities
Payment and money transfer for current transactions shall
include:
a) Payments and money transfer relating to import, export of goods,
services;
b) Short-term banking and commercial credit loans;
c) Incomes from direct and indirect investment;
d) Money transfer when the reduction of direct investment capital is
permitted;
dd) Payment of the interests and installment payment of the principals of
foreign loans;
e) Unilateral money transfer for the consumption purpose;
g) Other similar transactions.
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