FIN 604_ Finance for International Business

COURSE TITLE:

FINANCE FOR
INTERNATIONAL BUSINESS

COURSE CODE:

FIN 604

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FIN 604_ Finance for International Business

FINANCE FOR INTERNATIONAL BUSINESS

A Research Project Presented in Partial

Fulfillment of the Requirement for the
Degree Master of Business
Administration

UBIS

January 2019

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FIN 604_ Finance for International Business

Executive Summary

Promoting international trade and service development is the development trend of the world,
especially developed countries. International trade activities are increasingly open and the
inevitable is that competition in the world market is increasingly fierce. According to the general
trend, the exchange of goods and services between Vietnam and other countries is becoming more
and more popular, the amount of foreign currency increases every year through the export of goods
with a competitive advantage. With Vietnam's position, in addition to famous agricultural products
and garments in the international market, especially the German market. More and more
Vietnamese businesses start doing business with Germany. Therefore, understanding the business
prospects and potential risks when dealing with German businesses is essential for Vietnamese
businesses to better compete with foreign exporters. This report examines the overall business
environment of Germany. My Dung Company is planning to develop Vovinam products to export
to Germany. Macroeconomic issues are presented, and solutions are proposed to address the risks.
Finally, exchange rate risks are reviewed, and measures taken to ensure My Dung Company is safe
when exporting products to Germany.

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FIN 604_ Finance for International Business

Acknowledgements

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FIN 604_ Finance for International Business

Table of Contents
1. My Dung company overview .................................................................................................. 7

1.1. My Dung company overview ........................................................................................... 7

2. Germany overview .................................................................................................................. 8

2.1. Politics and Legislation .................................................................................................... 8

2.2. Relations with Vietnam .................................................................................................... 8

2.3. Economy........................................................................................................................... 9

3. Scope of Export ..................................................................................................................... 11

3.1. Chosen field of export .................................................................................................... 11

3.2. The process of export ..................................................................................................... 12

3.3. The process of payment.................................................................................................. 12

4. Macro-financial Issues and Solutions .................................................................................... 13

5. Foreign Exchange Risk And Hedging Strategy..................................................................... 15

5.1. Current EUR/VND Trend .............................................................................................. 15

5.2. Trend Forecast of EUR/VND ......................................................................................... 15

5.3. Hedging Strategy ............................................................................................................ 16

6. Conclusion ............................................................................................................................. 18

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FIN 604_ Finance for International Business

List of Figures

Figure 1. The process of export .................................................................................................... 12

Figure 2. The process of payment ................................................................................................. 12

Figure 3. EUR -VND Exchange rate ............................................................................................ 15

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FIN 604_ Finance for International Business

1. My Dung company overview

1.1. My Dung company overview

As many Asian countries have used martial arts as one of the typical national traditions. Japan with
Karate, Korea developed Taekwondo as a national martial art, Thailand has Muay Thai. And
Vietnam has Vovinam, ... on July 21, 2010, the Ministry of Education of Vietnam cooperated with
Vietnam Vovinam Federation to develop Vovinam to become a physical education program for
Vietnamese students and students. Male. Moreover, Vovinam has been included in the official
sports system in South Asia. To develop Vietnamese martial arts, Vovinam has been famous in
Europe and America. However, Vovinam also faces competition with other martial arts, such as
Karate, Taekwondo, Akido, Muay Thai, etc. All these martial arts have been loved and trained by
Vietnamese youth. According to data from Vietnam Vovinam Federation, nearly 600 students
annually participate in internships. And there are more than 1,200 people participating in martial
arts in general. And to attend a martial arts class, martial arts practitioners must be equipped with
martial arts clothes and belts. And some necessary tools during practice.

Realizing the potential in martial arts clothes, tools and training tools for Vovinam martial arts
market, My Dung has been opened and called a prestigious brand in a martial arts market. My
Dung has a closed performance from production to product distribution, to agents, martial arts
centers, customers or schools in many provinces of Vietnam.

For the output, My Dung focuses on martial arts coaches, martial arts centers, and sportswear
agents. And the form of selling products is wholesale distribution with large quantities of products.
Not only in Ho Chi Minh City, My Dung also provides products for provinces from North to South.
And according to the development strategy, My Dung also plans to bring products abroad where
Vovinam has been interesting and developed. And this development structure is based on the
support of Vietnam Vovinam Federation. It is a great advantage to help My Dung create a
sustainable brand position in the Vietnamese martial arts market.

After 20 years of developing the brand, by 2018, My Dung has become a powerful force in this
market. With 2 factories in Ho Chi Minh City and Ben Tre Province (west), My Dung has
developed a huge distribution and sales network. Providing many customers from Ho Chi Minh to
the South and introducing products to countries in South Asia, Europe and all over the world.

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2. Germany overview

2.1. Politics and Legislation

Legislature: The two-institute system: In addition to the Federal Parliament, the Federal Council
consists of representatives of state governments to express the interests of states in legislative
work.

State construction: Germany is a federal state of 16 states with its own constitution, parliament
and government. The highest state power is in the hands of the federation. The states represent the
Union and participate in federal legislative work through the Federal Council.

Voting book: Citizens' right to universal, equal and secret voting from the age of 18 (in local
elections, sometimes aged 16), the Federal Parliament elects every 4 years.

Federal Prime Minister: TS. Angela Merkel (CDU) since 2005.

Party system: The multi-party system, parties with special constitutional positions, are financially
supported by the state, only the Federal Constitutional Court is allowed to ban the party.

Representative parties in the Federal Parliament: Christian Democratic Alliance (CDU), Christian
Christian Union (CSU), Liberal Democratic Party (FDP), German Democratic Social Party (SPD),
Left Party, Alliance 90 / Green Party (Green Party).

Legal system: Germany is a social rule state, applying the principles of power and legal division
of the bureaucracy. Every state agency complies with constitutional order.

2.2. Relations with Vietnam

Germany is Vietnam's largest trading partner in Europe, accounting for 19% of our exports to the
EU (far ahead of other EU members, with both British and French combined); and is also an
important gateway for Vietnamese goods to other markets in Europe. The total value of trade
exchange between the two countries in 2010 is estimated at over US $ 3.5 billion (Source: Ministry
of Industry and Trade).

Vietnamese products exported mainly to Germany in the order of total value are footwear, textiles,
coffee beans, furniture, seafood, leather goods, etc., and imported from Germany are mostly
machines, technical equipment.

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FIN 604_ Finance for International Business

As an export-oriented economy, Germany sees Vietnam as a potential market for rapid growth in
Asia (behind only China and India) and many of Germany's leading corporations (Siemens, Metro,
Mercedes-Benz), Deutsche Bank, Allianz ...) committed to long-term investment in Vietnam.

However, German investment in Vietnam is still very modest compared to the potential and desire
of both sides. As of November 2010, Germany has 153 projects with a total registered capital of
about 801 million USD, ranking 24 th among 93 countries and territories investing in Vietnam.

German investment mainly focuses on industrial production, technical services, retail services,
software technology, communications, banking, finance, insurance etc. distribution. in 22
provinces and cities of Vietnam, which are concentrated in Ho Chi Minh City. Ho Chi Minh,
Hanoi, Binh Duong and Dong Nai.

Germany is one of the many aid countries and often ODA for Vietnam. From 1990 up to now,
Germany has provided over 1 billion Euro for ODA projects in Vietnam. At the Donor Conference
for Vietnam in December 2010, Germany pledged to provide Vietnam with USD 198 million for
2011 (an increase of 46% compared to the commitment for 2010). German ODA focuses mainly
on the following 3 key areas:

- Supporting reform policies, including promoting private sector and vocational training.

- Environment, protection and long-term use of natural resources including water supply and
water treatment and waste,

- Health, family planning, HIV / AIDS prevention.

In addition, Germany contributes to the development cooperation programs of international

development cooperation organizations such as the United Nations Development Program
(UNDP), World Bank, Asian Development Bank. and other EU development programs.

2.3. Economy

Germany implements the "social market economy" approach with the motto "less state as possible,
more state as necessary". The state does not interfere with the formation of prices and wages, but
only facilitates the framework for economic processes to develop so that it is highly effective and
ensures fairness and social stability.

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FIN 604_ Finance for International Business

Germany is one of the most developed industrial countries in the world, ranking 4th in the world
after the US, Japan and China in terms of GDP, ranking second in the world in terms of exports
(after China). Major industries are: Manufacturing cars, manufacturing machinery, equipment,
chemical industry, electrical and electronic engineering industry. Since 1975 Germany is a
member of the G8.

For the German economy, German economic researchers reduced their forecasts to an average of
1.8% in both 2018 and 2019. Meanwhile, the country's economic growth rate was only reached.
1.6% in 2018 and 1.5% in 2019. In 2020, the German economy is expected to grow only 1.4%.
The reason for this decline is the weakening of the global economy when faced with an increasing
trend of financial crisis and trade. Global economic growth is only 3.5% in the next 2 years. Global
economic growth is expected to reach 3.7% this year. For the Eurozone, the forecast for 2018
growth will be lowered to 1.9% and decrease to 1.8% for 2019 and 1.6% in 2020.

Although tax cuts and public spending were higher, the budget surplus remained unchanged at
36.6 billion euros in 2017, 37.8 billion euros in 2018 and 34.7 billion euros in 2019 as a result.
Good business in Germany and as a result, tax revenues increase.

The number of employees increased from 44.3 million in 2017 to 44.9 million in 2018 and will
increase to 45.3 million next year. At the same time, the number of unemployed people will
decrease from 2.5 million to 2.3 million in 2018 and 2.2 million in 2019. This will cause the
unemployment rate to fall from 5.7% in the year. 2017 down to 5.2% in 2018 and 4.8% in 2019.

Consumer price inflation will increase to 1.9% in 2019. German surplus current account (including
goods, services and transfers) is expected to increase slightly from 262.6 billion euros in 2017 to
277.0 billion euros in 2018 and 284 billion euros in 2019. (Minisstry of Foreign Affairs, 2018).

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3. Scope of Export

3.1. Chosen field of export

Vovinam is not only a national martial art of Vietnam but also a sport listed in the list of sports
that Vietnam wants to introduce to the world. With centuries of culture of Vietnam and Germany,
Vovinam has been loved by many Germans and Vietnamese in Germany. That helped My Dung
take a big step forward in exporting martial arts to the German market.

Because of the Vietnamese martial arts country, Vovinam martial arts uniforms also have their
own characteristics. My Dung's main export line is Vovinam uniform with different materials.
Besides, My Dung also exported other martial arts uniforms, or martial arts training and
competition tools. With the increasing demand of the German market, the company has achieved
remarkable success in providing the market with advanced and modern products, superior to many
other competitors.

With abundant raw materials, high productivity in Vietnam and experience in exporting products
to Laos, Cambodia, My Dung has prepared a strong and confident image of the company exporting
products to the German market. own and European market in general.

Since launching a plan to export goods to Germany, My Dung has improved its internal capabilities
in advanced production lines, European standard materials and put products into the quality
assessment system. quality of the European Apparel Association. Due to these factors, all products
manufactured by the company are guaranteed the best quality and design and are durable in all
conditions of use. My Dung wants to affirm that Vietnamese products are of sufficient quality in
the international market.

With the popularity of Vovinam in Germany through competitions organized by leaders of

Vovinam Vietnam and the world, My Dung is also supported by many athletes in Germany. That
is the advantage for My Dung in the brand promotion campaign her.

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3.2. The process of export

Figure 1. The process of export

3.3. The process of payment

My Dung's major trading currency with Germany’s importers is EUR – VND. The payment
process is done in the following steps:

Figure 2. The process of payment

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4. Macro-financial Issues and Solutions

Like other EU countries, Germany is the first major export market in the EU. The close relationship
between the two countries many years ago has helped Vietnamese products and businesses become
popular in the German market. However, many enterprises in Vietnam have not grasped the import
regulations of Germany or European countries, so it is difficult for them to export to this market.
Basically, Germany is not difficult in trade barriers, besides being a member of the European
Union (EU), Germany's trade regulations are mainly applied in EU commitments. However,
Germany still has its own rules that apply to specific food and clothing imports.

Import Tax

As in the countries of the European Union, Germany has relatively high tariffs on imports from
countries outside the EU. The tax rate of 18.5% is applied by Germany to all business transactions,
including imports from other countries.

Regarding import duties, Germany has strict rules for goods from African and Southeast Asian
countries. Specific rates are as follows:

Raw materials: Germany does not tax or only applies the highest tax rate of 4.5%, except for higher
metal taxes.

Semi-finished products: tax rates from 3% to 15%.

Finished products: tax rate from 4% to 20%.

Agricultural products: Tax rates vary by product.

As a member of the EU, Germany complies with EU import tax regulations. Specifically, Germany
will exempt footwear and garments from Vietnam.

Value added tax (VAT)

Like all EU countries, all goods in Germany are subject to VAT. Germany is maintaining three
tariffs: the standard tax rate is 19.6% for general goods, 5.5% exemption for products such as food,
crops and livestock; Textbooks and newspapers; Art and collectibles; Fee for visiting cultural
heritage ... and 2.1% tax exemption for books, shoes, children's clothes, public transport. When
goods are imported into Germany from other countries, VAT is charged at the border at the same
time as the import tax.

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FIN 604_ Finance for International Business

The antidumping duty

Anti-dumping duties are made for the purpose of artificially increasing the price of imported goods
to protect domestic production from foreign competition. In general, anti-dumping taxes are
calculated and implemented when assuming that at lower tariffs, domestic production will face
fierce competition from imports and market share will essentially fall. into importers. There are
two forms of anti-dumping tax: temporary (the first 6 months and then renewed in the next 3
months) or the last tax (5 years 1).

Rules of origin

German Customs always requires that all goods imported into Germany have clear origin
information. In fact, each country has its own rules of origin for imports to implement trade
measures / instruments such as anti-dumping and countervailing duties.

Packaging and labeling regulations

Germany has specific packaging and labeling requirements according to product groups and
market segments. In general, goods must be packaged at least to protect the product properly. The
product must be fresh, clean and free from defects. To get the best results, businesses must talk to
customers in advance about their specific requirements for packaging. Some common
specifications for standard packaging for wholesale items are always packed in cardboard boxes
and wooden boxes with different sizes.

Solutions

As a direct partner with importers in Germany, My Dung Company knows the economic situation,
changes in taxes and other business issues in order to be well prepared and avoid adverse losses.
Having the latest information on German Vovinam tournaments, grasping and updating the
demand of the martial arts market in Germany will help My Dung develop in Germany and the
European market. In addition, My Dung focuses on upgrading machines in factories to increase
production capacity, increase product value to provide enough for this potential market. In
addition, My Dung should have a plan to call for investment to develop stronger business, able to
reach the German market in particular and the European market in general.

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FIN 604_ Finance for International Business

5. Foreign Exchange Risk and Hedging Strategy

5.1. Current EUR/VND Trend

Figure 3. EUR -VND Exchange rate

In 2018, EUR / VND peaked at VND 26,941 / EUR and reached the bottom of VND 25,200 /
EUR. In fact, EUR is not the preferred currency in Vietnam, although value is higher than USD
but less popular than USD. But because of that, the euro is not much changed. The range of EUR
fluctuations will be stable between 22,400 and 26,000 in 2019. Moving to 2020, the rate will
increase slightly and stably from 23,800 to 25,600.

5.2. Trend Forecast of EUR/VND

In Vietnam, the role of the euro remains modest compared to the size of trade, direct investment
and tourism between Vietnam and the euro area and the euro has not been widely used. Dollar.
The proportion of deposits in euros in total foreign currency deposits ranges from 4 to 10% and
the rate of transactions in euros accounts for only 10-13% of foreign currency transactions. The
reason is that USD is not only popular in Vietnam but also in the world. In addition, the euro
contains too many risk factors.

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FIN 604_ Finance for International Business

But when the opening of trade and integration with the EU expanded, the exchange rate of EUR /
VND also fluctuated according to the world trend. At first, 1 euro worth 14,800 VND. However,
when the euro and the US dollar rose against the VND, the euro doubled against the VND and
reached EUR 1 to VND23,000. Since EUR depreciated against the US dollar, the domestic
currency also declined.

In the next quarter of 2019, the euro is unlikely to see too much price volatility compared to other
currencies in the world and tends to rise against the dollar. Factors affecting the euro exchange
rate are the trend of economic recovery in the euro area and the possibility that ECB will continue
to raise interest rates.

One of the most important reasons for the dollar to appreciate against the euro in the past two years
is that the dollar's interest rate is much higher than the euro. However, according to observers, the
dollar's interest rate has risen near the peak while the euro only started gaining momentum.

In general, the euro is expected to increase sharply in the coming months, the EUR / VND
exchange rate may reach 27,000 by the end of this year.

5.3. Hedging Strategy

When businesses are required to regularly use foreign currency transactions and in the context of
fluctuating exchange rates, it is an effective tool to help businesses protect their foreign capital.
These derivative tools are created for this purpose, in which the needs of the market are met, and
risks are shared in a balanced way, helping investors and businesses avoid major losses.

There are a variety of hedging instruments designed for foreign exchange risks such as forward
contracts, options and swaps.

Forward contracts are contracts between buyers and sellers to buy or sell an asset at a transition
date with a forward price. Futures contracts may be used to speculate in the future, but usually the
purpose of the contract is to avoid assets affected by future price or interest risks (Risk insurance).

Swap is the transaction of buying and selling the same amount of foreign currency (using only two
currencies in the transaction), in which the payment terms of the two transactions are different and
the exchange rate of the two transactions is determined. set in VND. Time at the time of signing
the transaction contract.

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FIN 604_ Finance for International Business

Options are a derivative form of securities that allow holders to buy or sell a certain amount of
basic goods at a fixed price at a time. Predefined points There are two basic options: call options
and booking options. These basic goods can be stocks, stock indexes, bonds, bond indices, money
or futures.

My Dung Company should use the futures contract to counteract the decline in EUR value, which
endangers the company's financial situation.

- My Dung signs a contract of 100,000 EUR with payment in 30 days.

- My Dung is forwarded to sell EUR at the price of VND 26,000 / dong for 30 days.

- My Dung received 100,000 EUR and exchanged for VND via futures contract, then received
100,000 * 26,000 = 2,600,000,000 VND.

+ If the EUR / VND in the future is 25,000, then compared to the unprotected position, the
company will win 100,000 * (26,000-25,000) = VND 100,000,000

+ If the EUR / VND in the future is 25,500, then compared to the unprotected position, the
company will win 100,000 * (26,000-25,500) = VND 50,000,000

+ If the EUR / VND in the future is 27,000, then the company loses 100,000 * (27,000-26,000)
compared to the unprotected position = VND 100,000,000.

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FIN 604_ Finance for International Business

6. Conclusion

In recent years, Vietnam's economy has grown strongly with the help of many Western countries,
in which Germany plays an important role in importing Vietnamese garments and footwear. The
German market is more attractive to Vietnamese businesses. However, there are some
macroeconomic risks imposed on Vietnamese goods in terms of tax rates, technical requirements
and regulations. Therefore, a leading enterprise in Vietnamese martial arts industry, My Dung
understands the changes in import and export issues from both Vietnam and Germany. In addition,
the exchange rate risk is also very important. Although the value of EUR tends to increase slightly
and stabilize its value, the European economy will change significantly, which will make exports
less profitable. Therefore, My Dung may use some risk prevention tools to protect itself from
losing money due to exchange rate fluctuations. With the volatility of the euro, futures contracts
are expected to give the company a measure of protection against currency fluctuations, whether
the euro or the European economy is volatile.

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