You have a business based in Vietnam that has just imported a product from Thailand. The invoice for this purchase is denominated in Vietnamese dong and must be paid in 60 days. That is, you will pay for your purchase in Vietnamese dong. Given this arrangement, what is the exchange-rate risk you face as an importer?

Question

BlackTom AI · Accepted Answer

When a purchase is invoiced and payable in the importer’s domestic currency, the importer does not face transaction exchange-rate risk.

1) Relevant knowledge points and concepts
- Transaction (exchange-rate) exposure arises when a firm has receivables or payables denominated in a foreign currency and must convert between currencies in the future.  
- The currency of invoicing determines which party bears that conversion risk: if the importer pays in the foreign exporter’s currency, the importer bears risk; if the importer pays in its own currency, the exporter bears risk.

2) Step-by-step reasoning
- You are an importer based in Vietnam. The invoice from Thailand is denominated in Vietnamese dong (VND).  
- Payment is due in 60 days, but the amount payable is specified in VND.  
- Since you will pay in VND, you do not need to convert VND into Thai baht (THB) to settle the invoice.  
- Therefore any future movements in the VND/THB exchange rate do not affect the VND amount you owe.

3) Calculations
- No numerical conversion is required because no currency conversion will be undertaken by the importer; hence no calculation steps apply.

4) Why the correct answer is correct
- The importer avoids transaction exchange-rate risk because the obligation is fixed in the importer’s domestic currency. Any depreciation or appreciation of the VND against the THB affects the exporter (or whoever bears currency conversion), not the importer.

5) Why the other options are incorrect
- “Dong strengthens against the Baht” or “Dong weakens against the Baht” would matter only if you owed THB or had to convert currencies; here you do not.  
- “Currencies will move in unison” is speculative and irrelevant; proximity does not eliminate exchange-rate risk and is not the basis of the invoicing arrangement.

6) Conclusion
- You face no exchange-rate risk since you make your payments in Vietnamese dong. This matches the provided correct answer.

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