Risk Management in International Trade

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Risk Management in International Trade
Term Paper

2012
Aritra Pallab Sil
Amity University Dubai

ACKNOWLEDGMENT

I wish to thank Mr Rajneesh Mishra for his tremendous contribution and support morally toward the completion of this project. I am also grateful to my project supervisor Dr. Swati Rathor who without her help and guidance this project would not have been completed. I also show my gratitude to my friends and all who contributed in one way or the other in the course of the project.

DECLARATION

I hereby declare that the project work entitled “RISK MANAGEMENT IN INTERNATIONAL TRADE” submitted to the AMITY UNIVERSITY DUBAI, is a record of an original work done by me under the guidance of Dr. SWATI RATHOR, Faculty Member of AMITY UNIVERSITY DUBAI and this project work hasn’t performed the basis for the award of any Degree or diploma/ associate ship /fellowship and similar project if any.

ARITRA PALLAB SIL
MBA 3COUNTRY PROGRAM
AUD 0384

EXECUTIVE SUMMARY

Risk management in international trade designates the entire set of risk management processes and models allowing organization to implement risk-based policies and practices. They coverall techniques and management tools required for measuring, monitoring and controlling risks. The spectrum of models and processes extends to all risks: credit risk, market risk, interest rate risk, liquidity risk and operational risk, to mention only major areas. Broadly speaking, risk designates any uncertainty that might trigger losses. Risk based policies and practices have a common goal: enhancing the risk–return profile of the bank portfolio. The innovation in this area is the gradual extension of new quantified risk measures tall categories of risks, providing new views on risks, in addition to qualitative indicators of risks. Current risks are tomorrow’s potential losses. Still, they are not as visible as tangible revenues and costs are. Risk measurement is a conceptual and a practical challenge, which probably explains why risk management suffered from a lack of credible measures. The recent period has seen the emergence of a number of models and of “Risk Management Tools” for quantifying and monitoring risks. Such tools enhance considerably the views on risks and provide the ability to control them.

 
CONTENTS

CHAPTER 1. INTERNATIONAL TRADE……………………... 6 1. INTRODUCTION……………………………………..... 7 2. REVIEW OF LITERATURE…………………………... 9 3. WORLD TRADE ORGANIZATION……………….... 10
4. FUNCTIONS OF WTO……………………………….. 12 5. NEED OF INTERNATIONAL TRADE……………… 13
6. BENEFITS OF INTERNATIONAL TRADE………... 14
7. CONCERNS OF INTERNATIONAL TRADE……… 16
8. ADVANTAGES OF INTERNATIONAL TRADE…... 18
9. DISADVANTAGES OF INTERNATIONAL
TRADE………………………………………………… 20

CHAPTER 2. risk management…………………………. 22 1. RISK ………………….……………………..………… 23 2. RISK IN INTERNATIONAL TRADE………………... 24
3. FOREIGN EXCHANGE RISK MANAGEMENT…... 28
4. PAYMENT RELATED RISK MANAGEMENT…….. 30
5. LETTER OF CREDIT………………………………… 33 6. ADVANTAGES OF LETTER OF CREDIT………… 36
7. DISADVANTAGE OF LETTER OF CREDIT……… 37

CHAPTER 3. evalution of risk in trade…………… 38
1. EVALUATION OF RISK……………………………... 39 2. QUANTITATIVE METHODS OF EVALUATING
RISK……………………………………………………. 41 3. QUALITATIVE METHODS OF EVALUATING
RISK……………………………………………………. 45

CHAPTER 4. conclusion………………………………….................... 48 CHAPTER 5. biblography…………………………………………….. 50

CHAPTER 1.

INTERNATIONAL TRADE

INTRODUCTION

What Is International Trade?
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. Political change in Asia, for example, could result in an increase in the cost of labour, thereby increasing the manufacturing costs for an American sneaker company based in...
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