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RISK MANAGEMENT
 IN INTERNATIONAL
       TRADE
        by :
               ARITRA PALLAB
SIL
               AUD 0384
                          1
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.
                             2
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.




                                             3
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.

                             4
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
                                                    5
FOREIGN EXCHANGE
RISK MANAGEMENT




                   6
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.


                         7
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.
                                                     8
THREE ASPECTS OF
FOREIGN EXCHANGE RISK
         Economic Risk


     O Changes              in
      competitive position as
      a result of permanent
      changes in exchange
      rates.


                                 9
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.



                                                   10
PAYMENT METHOD
       Cash in
       Advance


     Documentary
      Collections


        Open
       Account



      Letters of
       Credit

                    11
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.

                                                    12
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.
                                                   13
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.
                                                        14
CONCLUSION

O Effective mitigation  process can bring
  much better lending process by which the
  international trade can be financed in a
  risk free manner.




                                             15
16

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Risk management in international trade ppt

  • 1. RISK MANAGEMENT IN INTERNATIONAL TRADE by : ARITRA PALLAB SIL AUD 0384 1
  • 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. 2
  • 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. 3
  • 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. 4
  • 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 5
  • 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. 7
  • 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. 8
  • 9. THREE ASPECTS OF FOREIGN EXCHANGE RISK Economic Risk O Changes in competitive position as a result of permanent changes in exchange rates. 9
  • 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. 10
  • 11. PAYMENT METHOD Cash in Advance Documentary Collections Open Account Letters of Credit 11
  • 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. 12
  • 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. 13
  • 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. 14
  • 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. 15
  • 16. 16