Impact of Exchange Rate Fluctuations on Business Risk of Joint Stock Commercial Banks: Evidence from Vietnam

Abstract

The nearer Vietnamese New Year festival comes, the more foreign currency is demanded in order to respond for imports and exports. This need leads to an effervescent market in foreign exchange business of Join Stock Commercial Banks. The fundamental objective of this paper is to answer the three questions.  First, does joint stock commercial banks in Vietnam have to face foreign currency difficulties? Second, which factors impact on exchange rate? And finally, what solutions Joint stock commercial banks in Vietnam should follow in order to reduce exchange rate risk in foreign exchange business? The paper proceeds as follows. First this research will give some information about the fluctuation of foreign exchange rate in 2014. Next we will try to answer the question what make foreign exchange rate fluctuate by establishing one model using data from 2005 to 2014. The final part shows the derivative instruments that commercial banks in Vietnam often use for hedging foreign exchange rate risk.

Keywords: Exchange rate, Exchange Rate Risk, Commercial Banks, Derivative Instruments