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Risks In International
Operations
What is Risk?
Risk is the integral part of all type of business activities, its magnitude becomes high in
international transactions.
• Countries involved parties like exporters and importers
• Involvement of a countries whose credibility and creditworthiness is uncertain.
Types Of Risks...
1.Marine Risk
It refers to which the cargo is exposed during transportation of shipment such as fire, storm,
collision, leakage, explosion.
2. Credit Risk
It arises if the buyers is unable to pay or defaults or go bankrupt.
3. Political Risk
It arises from government actions like blocking of payments, imports restrictions, cancellation
of licences, war riots.
4. Exchange Risk
It arises due to fluctuations in exchange rates during the time between the shipment of goods
and payments
Transaction
Exposure
Translation
Exposure
Economic
Exposure
It is faced by the
company when there
are changes in
currency rates.
The risk that a
company's equities,
assets, liabilities or
income will change in
value as a result of
exchange rate changes.
It usually affects the
company's cash flow,
foreign investment &
earning due to
fluctuation of foreign
currency exchange
rates.
Objectives Of Risk Management
Safeguard Interest
By this risk
management each
company wants to
safeguard in interest &
protest against all
possible risks.
Diversification
A company can diversify
its foreign exchange
risks by adopting a
policy of currency
diversification.
Negotiation
Company should try to
negotiate a lower price
with the foreign
supplier.
Objectives Of Risk Management
Best Rates
The company should
buy the currency when
it is the cheapest and
sell it when it is
costliest.
Insurance Cover
The company should
cover against the
unaffordable adverse
exchange risk
management strategy
of talking the insurance
cover.
Exchange Risk
If company is unable to
eliminate the exchange
risks, it should try its
best to avoid exchange.
Techniques Of Risk Management
Internal Techniques
• Netting
• Matching
• Pricing Policies
• Assets and Liability Management
External Techniques
• Forward Contracts
• Future Contracts
• Discounting
• Factoring
Internal Techniques
• Netting
It is the technique of minimising exchange risk by optimising cash flow movement within
the firm. The basic idea behind netting is to transfer only net amount.
• Matching
It is similar to netting. The foreign exchange risk can be eliminated or reduced if the
company is having the exposure to receipts.
• Asset & Liability Management
ALM is the process of adjusting
liability to meet and asset demand,
liquidity needs and safety
requirements.
• Pricing Policies
It is the technique which is used by
the company for the variation in the
invoice amount or contract price.
External Techniques
• Forward Contracts
In finance, a forward contract or simply
a forward is a non-standardized
contract between two parties to buy or
to sell an asset at a specified future time
at a price agreed upon today,
15
25
35
• Future Contracts
The future contract is same as forward
contract expect they are standardised in
terms of contract size is traded on
future exchanges and is settled daily.
• Short-Term Borrowings
A company can manage the exchange risk by taking the help of short-term borrowings
or talking a foreign loan.
• Risk Sharing
It is contractual arrangement between the parties who agree in advance to share the
foreign exchange risk. This method suggests the establishment of long-term relation
between the parties.

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Risk in international operations by Abhishek

  • 2. What is Risk? Risk is the integral part of all type of business activities, its magnitude becomes high in international transactions. • Countries involved parties like exporters and importers • Involvement of a countries whose credibility and creditworthiness is uncertain.
  • 3. Types Of Risks... 1.Marine Risk It refers to which the cargo is exposed during transportation of shipment such as fire, storm, collision, leakage, explosion. 2. Credit Risk It arises if the buyers is unable to pay or defaults or go bankrupt. 3. Political Risk It arises from government actions like blocking of payments, imports restrictions, cancellation of licences, war riots. 4. Exchange Risk It arises due to fluctuations in exchange rates during the time between the shipment of goods and payments
  • 4. Transaction Exposure Translation Exposure Economic Exposure It is faced by the company when there are changes in currency rates. The risk that a company's equities, assets, liabilities or income will change in value as a result of exchange rate changes. It usually affects the company's cash flow, foreign investment & earning due to fluctuation of foreign currency exchange rates.
  • 5. Objectives Of Risk Management Safeguard Interest By this risk management each company wants to safeguard in interest & protest against all possible risks. Diversification A company can diversify its foreign exchange risks by adopting a policy of currency diversification. Negotiation Company should try to negotiate a lower price with the foreign supplier.
  • 6. Objectives Of Risk Management Best Rates The company should buy the currency when it is the cheapest and sell it when it is costliest. Insurance Cover The company should cover against the unaffordable adverse exchange risk management strategy of talking the insurance cover. Exchange Risk If company is unable to eliminate the exchange risks, it should try its best to avoid exchange.
  • 7. Techniques Of Risk Management Internal Techniques • Netting • Matching • Pricing Policies • Assets and Liability Management External Techniques • Forward Contracts • Future Contracts • Discounting • Factoring
  • 8. Internal Techniques • Netting It is the technique of minimising exchange risk by optimising cash flow movement within the firm. The basic idea behind netting is to transfer only net amount. • Matching It is similar to netting. The foreign exchange risk can be eliminated or reduced if the company is having the exposure to receipts.
  • 9. • Asset & Liability Management ALM is the process of adjusting liability to meet and asset demand, liquidity needs and safety requirements. • Pricing Policies It is the technique which is used by the company for the variation in the invoice amount or contract price.
  • 10. External Techniques • Forward Contracts In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or to sell an asset at a specified future time at a price agreed upon today, 15 25 35 • Future Contracts The future contract is same as forward contract expect they are standardised in terms of contract size is traded on future exchanges and is settled daily.
  • 11. • Short-Term Borrowings A company can manage the exchange risk by taking the help of short-term borrowings or talking a foreign loan. • Risk Sharing It is contractual arrangement between the parties who agree in advance to share the foreign exchange risk. This method suggests the establishment of long-term relation between the parties.