Risks in International Trade
Risks in International Trade & Mitigating Measures
What are the different types of risks in international trade?
For buyers and sellers that are engaged in international trade, they may experience one or more of the following risks: * Buyer’s Insolvency/Credit Risk * Buyer’s Acceptance Risk * Knowledge Inadequacy * Seller’s Performance Risk * Documentation Risk * Economic Risk * Cultural Risk * Legal Risk * Foreign Exchange Risk * Interest Rate Risk * Political/Sovereign Risk * Transit Risk
Buyer’s Insolvency/Credit Risk
Buyer’s insolvency or credit risk refers to the inability of the buyer to honour full payment for goods or services rendered on due date. This is a risk on seller associated with selling or supplying a product or service without collecting full payment or experienced late payment.
Buyer’s Acceptance Risk
Buyer’s acceptance risk refers to the buyer’s non-acceptance of goods delivered or services rendered.
Unaccepted goods or services may create difficulty for the seller to dispose the goods to another buyer or encounter working capital problem.
Knowledge Inadequacy
A buyer or seller who intends to expand his business into another product/service/industry/country may not have adequate knowledge on the risk of the new product/service, local market situation or goods’ fashion. The lack of knowledge increases the chances of business failure.
Seller’s Performance Risk
A seller may fail to carry out his obligations in a sales contract due to one or more reasons, and such non-performance by the seller may have adverse consequential impacts on the buyer’s business. It could be expensive for the buyer to take legal actions against the seller in his country.
Documentation Risk
Documentation risk is the risk of non-conformance to specific documentation requirements under a sales contract or documentary credit. Failure in fulfilling documentation requirements may result in seller’s inability or delay in obtaining
What are the different types of risks in international trade?
For buyers and sellers that are engaged in international trade, they may experience one or more of the following risks: * Buyer’s Insolvency/Credit Risk * Buyer’s Acceptance Risk * Knowledge Inadequacy * Seller’s Performance Risk * Documentation Risk * Economic Risk * Cultural Risk * Legal Risk * Foreign Exchange Risk * Interest Rate Risk * Political/Sovereign Risk * Transit Risk
Buyer’s Insolvency/Credit Risk
Buyer’s insolvency or credit risk refers to the inability of the buyer to honour full payment for goods or services rendered on due date. This is a risk on seller associated with selling or supplying a product or service without collecting full payment or experienced late payment.
Buyer’s Acceptance Risk
Buyer’s acceptance risk refers to the buyer’s non-acceptance of goods delivered or services rendered.
Unaccepted goods or services may create difficulty for the seller to dispose the goods to another buyer or encounter working capital problem.
Knowledge Inadequacy
A buyer or seller who intends to expand his business into another product/service/industry/country may not have adequate knowledge on the risk of the new product/service, local market situation or goods’ fashion. The lack of knowledge increases the chances of business failure.
Seller’s Performance Risk
A seller may fail to carry out his obligations in a sales contract due to one or more reasons, and such non-performance by the seller may have adverse consequential impacts on the buyer’s business. It could be expensive for the buyer to take legal actions against the seller in his country.
Documentation Risk
Documentation risk is the risk of non-conformance to specific documentation requirements under a sales contract or documentary credit. Failure in fulfilling documentation requirements may result in seller’s inability or delay in obtaining