Risk management in international trade ppt

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Risk management in international trade ppt

  1. 1. RISK MANAGEMENT IN INTERNATIONAL TRADE by : ARITRA PALLABSIL AUD 0384 1
  2. 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. 3. IMPORTANCE OFINTERNATIONAL TRADEO Provides goods and services.O Provides employment.O Controls the cost of goods and services.O Makes an organization global. 3
  4. 4. WHAT IS RISK?O Risk is defined as the chance that an investments actual return will be different than expected. This includes the possibility of losing some or all of the original investment. 4
  5. 5. TYPES OF RISKS O Cultural RiskO Buyer’s Insolvency/Credit Risk O Legal RiskO Buyer’s Acceptance O Foreign Exchange Risk RiskO Knowledge Inadequacy O Interest Rate RiskO Seller’s Performance O Political/Sovereig Risk n RiskO Documentation Risk O Transit RiskO Economic Risk 5
  6. 6. FOREIGN EXCHANGERISK MANAGEMENT 6
  7. 7. FOREIGN EXCHANGE RISKO It can be defined as the variability of a firm’s value due to uncertain changes in the rate of exchange. 7
  8. 8. THREE ASPECTS OFFOREIGN EXCHANGE RISK Transaction Risk Translation RiskO 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. 9. THREE ASPECTS OFFOREIGN EXCHANGE RISK Economic Risk O Changes in competitive position as a result of permanent changes in exchange rates. 9
  10. 10. PAYMENT RELATED RISK MANAGEMENTIt is impossible to be in international tradewithout involving your bank for all the servicesthey provide such as advice on financial issuesand the potential risks involved. 10
  11. 11. PAYMENT METHOD Cash in Advance Documentary Collections Open Account Letters of Credit 11
  12. 12. PAYMENT METHODO 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. 13. PAYMENT METHODO 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. 14. CONCLUSIONO 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. 15. CONCLUSIONO Effective mitigation process can bring much better lending process by which the international trade can be financed in a risk free manner. 15
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