1. RISK MANAGEMENT
IN INTERNATIONAL
TRADE
by :
ARITRA PALLAB
SIL
AUD 0384
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2. WHAT IS INTERNATIONAL
TRADE?
O International trade is
the exchange of
goods and services
between countries.
This type of trade
gives rise to a world
economy, in which
prices, or supply
and demand, affect
and are affected by
global events.
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3. IMPORTANCE OF
INTERNATIONAL TRADE
O Provides goods and services.
O Provides employment.
O Controls the cost of goods and services.
O Makes an organization global.
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4. WHAT IS RISK?
O Risk is defined as the
chance that an
investment's actual
return will be different
than expected. This
includes the possibility
of losing some or all
of the original
investment.
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5. TYPES OF RISKS
O Cultural Risk
O Buyer’s
Insolvency/Credit Risk O Legal Risk
O Buyer’s Acceptance O Foreign Exchange
Risk Risk
O Knowledge Inadequacy O Interest Rate Risk
O Seller’s Performance O Political/Sovereig
Risk n Risk
O Documentation Risk O Transit Risk
O Economic Risk
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6. FOREIGN EXCHANGE
RISK MANAGEMENT
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7. FOREIGN EXCHANGE RISK
O It can be defined as
the variability of a
firm’s value due to
uncertain changes
in the rate of
exchange.
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8. THREE ASPECTS OF
FOREIGN EXCHANGE RISK
Transaction Risk Translation Risk
O The risk of changes in O Gains or losses from
the expected value of exchange rate
a contract between its changes that occur as
signing and its a result of converting
execution as a result financial statements
of unexpected from one currency to
changes in foreign another in order to
exchange rates. consolidate them.
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9. THREE ASPECTS OF
FOREIGN EXCHANGE RISK
Economic Risk
O Changes in
competitive position as
a result of permanent
changes in exchange
rates.
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10. PAYMENT RELATED RISK
MANAGEMENT
It is impossible to be in international trade
without involving your bank for all the services
they provide such as advice on financial issues
and the potential risks involved.
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11. PAYMENT METHOD
Cash in
Advance
Documentary
Collections
Open
Account
Letters of
Credit
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12. PAYMENT METHOD
O Cash in advance: With cash-in-advance payment
terms, the exporter can avoid credit risk because
payment is received before the ownership of the
goods is transferred.
O Documentary Collections: A documentary
collection (D/C) is a transaction whereby the
exporter entrusts the collection of a payment to the
remitting bank (exporter’s bank), which sends
documents to a collecting bank (importer’s bank),
along with instructions for payment.
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13. PAYMENT METHOD
O Open account: An open account transaction is
a sale where the goods are shipped and delivered
before payment is due.
O Letters of Credit: Letters of credit (LCs) are one
of the most secure instruments available to
international traders. An LC is a commitment by a
bank on behalf of the buyer that payment will be
made to the exporter, provided that the terms and
conditions stated in the LC have been met, as
verified through the presentation of all required
documents.
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14. CONCLUSION
O With the advantages of liquid and profitable, trade
finance is a business that is actively promoted by
commercial banks. Bankers wish to enlarge the
business scope and increase market share
through trade financing innovation.
O Risk identification framework along with the
establishment of risk evaluation indicator system
will enable bankers to have an apprehensive
understanding of the risks involved in trade
financing innovation, and provide the bankers with
early risk alert and guidance in the innovation.
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15. CONCLUSION
O Effective mitigation process can bring
much better lending process by which the
international trade can be financed in a
risk free manner.
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