January 21, 2023 at 12:33 pm #1858Simon HaughtoneParticipant
How to assess and manage various types of risks in trade finance.January 22, 2023 at 12:37 pm #1860Nithi BellirajParticipant
International trade has particular characteristics that give rise to different types of risks. The primary risks are:
- Product risks
- Manufacturing risks
- Transport risks
- Currency risks
- Country risk
- Corporate risk
- Commercial risk
- Fraud risk
- Documentary risk
Managing risk is a collaborative, cross-functional and big-picture effort. ISO’s five-step risk management process comprises the following and can be used by any type of entity:
January 23, 2023 at 12:42 pm #1862Allwyn AnandParticipant
- Identify the risks.
- Analyze the likelihood and impact of each one.
- Prioritize risks based on business objectives.
- Treat (or respond to) the risk conditions.
- Monitor results and adjust as necessary.
There are various risks in international trade due to different cultures, political and economic environments as well as national and international regulations.
Customer risk (commercial risk) – Customer risk does not only mean the risk of your trading partner not being able to deliver or pay as agreed, but also that your trading partner is unwilling to fulfil the agreement, or simply that you have different interpretations of the terms of the agreement.
The use of payment terms such as collection or documentary credit, and standard delivery terms like the Incoterms, reduces or eliminates various risks related to your business, including cancellation of orders, late delivery or delayed payments etc..
Country risk (political risk) – Political and economic circumstances may affect the possibility of doing trade. They may even prohibit deliveries or payments.
The risk of war, riots, civil commotions, changes in trade regulations, nationalization of companies, shortage of currency and weak banking systems are examples of country risks. Trade finance products can be structured to reduce or eliminate these kinds of risks.
Currency and interest risk (financial risks) – Fluctuations in, for instance, exchange rates, interest rates, commodity prices or transportation fees can have significant effects on companies, banks and countries. And, of course, on whether your trade deal will turn out as planned.
Well-structured deal terms and the right hedging products can ensure the completion of the deal as planned.
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