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Financial and commercial risks

From Australia
To South Africa
438 views / 0 experts
Aug 24, 2020
What are the financial and commercial risks in global trade?

1 answer

Imad K.
Aug 25, 2020

International trade takes place between countries with different exchange systems, which cause the exchange of one currency to another one. Due to the exchange-rate instability, there is the currency risk. Currency risk in international trade means risk of currency loss as a result of change in currency of price in relation to currency of payment in between signing an international contract and effecting of payment according to this contract.

During international trade realization, it's necessary to spend some time on goods transportation, that's why an exporter runs the credit risk and feels discomfort, connected with time and distance, which is needed for the transportation abroad and payment receiving. The time gap between the order to a foreign supplier and goods receiving, as a rule, is often connected with the duration of the period of transportation and the need to prepare the appropriate documentation for it.

The goods preparation and its delivery abroad requires additional financing, for which an exporter has to apply to a bank. In this case, the exporter needs a credit for a much longer time than he needed in case of selling goods domestically.

The exporter must carry out his own commitments in compliance with term and conditions of a credit deal. However, a risk of a bad debt can appear.

Commercial risks, connected with possibilities of non-receipt of profits or a loss occurrence during trade operations realization, can appear in such cases:

• customer insolvency at the moment of merchandise payment;

• customer's refusal of merchandise payment;

• change in price on goods after making of contract;

• decline in demand for goods;

• impossibility of money transfer to the exporter's country in connection with currency limitations in a customer's (importer's) country or a lack of currency; or refusal of an importer's country government for assignment of this currency because of any other reasons.

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