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Risk of US hiking rates drowns rupee

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Mumbai: The Indian rupee plunged to a new two-year low of Rs.65.69 to a dollar during intra-day trade on the foreign exchange markets on Thursday following apprehensions of a US interest rate hike and the continuing slide in the Chinese markets.

The rupee, however, later gained strength and closed the day’s trade at Rs.65.56 to a dollar.

Thursday’s intra-day fall mirrors the currency’s movements on Wednesday — when it had hit a fresh two-year low at Rs.65.44 to a US dollar.
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According to analysts, the rupee was impacted by the possibility of US raising its interest rate after a decade of easy financing.

The intent was made clear by the minutes of the last Federal Open Market Committee (FOMC) meet which was held on July 28-29.

Higher interest rates in the US are expected to lead the FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

The other major catalyst for the rupee’s fall has been the devaluation of yuan, intended to boost Chinese exports and arrest the fall in the Chinese markets by pumping up the economy.

“Today, the Chinese markets continued their downward movement despite various measures taken by the government there. This shows that the problem is deep rooted and the impact might be much greater,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

Though unrelated, the stock market crash can prompt China’s central bank to further devalue yuan to propel the domestic economy.

The People’s Bank of China had devalued yuan by two percent on August 11. This was the biggest devaluation in the Chinese currency since 1994.

The currency fell again dropped by two percent on August 12 panicking the world economy.

The attempt is viewed as a tack-tick to corner the international export markets from other emerging trading powers such as India and the Asean (Association of Southeast Asian Nations) grouping.

The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee.

The yuan has fallen by 4.6 percent till now since August 11.

(IANS)

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Businesses in Vietnam Face Cash Shortage: Study

Cash Shortage Hurts Investment in Vietnam

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Vietnam Booming Economy
A woman sells vegetables at an outdoor market in Hanoi, Vietnam. VOA

Businesses in Vietnam face a cash shortage that is preventing as much as $24 billion that could be invested in the nation’s $250 billion economy, according to a study by PwC Vietnam.

The financial services company analyzed the 500 businesses in Vietnam with the highest revenue that have been listed on both the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange for the last four years or more. PwC Vietnam analysts said that those companies’ “cash conversion cycle” has increased, meaning that they have to wait longer from the start of the business cycle, when they first make their investments, until those investments start to pay off in the form of revenue.

“We continue to see cash flows being sacrificed to attain top line targets in Vietnam, which is not sustainable for businesses in the long run,” said Mohammad Mudasser, who leads the working capital management practice at PwC Vietnam. “Managing operating working capital is a cross-functional responsibility,” he added.

Top line refers to revenue, while bottom line refers to profit.

Vietnam economy
Due to lesser investments in businesses, startups are not growing in Vietnam. VOA

To sacrifice cash for the sake of revenue targets usually means that companies are willing to make an initial cash investment, often to buy inventory that can be sold for revenue. However the long cash conversion cycle suggests that there are some inefficiencies along the way, such as longer wait times between billing a customer and actually collecting the payment.

While there is no perfect business cycle, the PwC Vietnam study suggests companies in Vietnam could tackle some inefficiencies to unlock further potential in the already fast growing economy.

In 2018 Vietnam had one of the highest cash conversion cycles in Asia, at 67 days, which is an increase of two days compared with 2017, according to PwC Vietnam. That compares with an average in Asia of 58 days, and in particular 64 days in neighboring Thailand and 54 in Malaysia. That means those other Southeast Asian countries are able to turn their investments into cash sooner than Vietnam does.

“The fast-growing companies had significantly higher short term debt growth, indicating risks to the sustainable growth of these companies,” PwC Vietnam, a consulting company that sells tax and accounting services, said in a press release.

If the U.S. Federal Reserve Bank increases interest rates in the coming year, as some economists are expecting, emerging markets, such as Vietnam, could follow. That would increase borrowing costs for companies, increasing their vulnerability to debt.

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However it estimated that only a fraction of that capital could be released, $11 billion, because some of the capital has to stay in the business cycle. Analysts said inventory and outstanding invoices, known as accounts receivable, where the best bet for improving efficiency. That could mean that too much inventory is being held, or that companies are waiting too long to be paid by customers. (VOA)