Fundamentals of Business

Risks in international trade

The risks that exist in international trade can be divided into two major groups:
Economic risks
. Risk of insolvency of the buyer,
.Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date
. Risk of non acceptance
. Surrendering economic sovereignty

Political risks
. Risk of cancellation or non renewal of export or import licences
. War risks
. Risk of expropriation or confiscation of the importer's company
. Risk of the imposition of an import ban after the shipment of the goods
. Transfer risk - imposition of exchange controls by the importer's country or foreign currency shortages
. Surrendering political sovereignty

Exchange rates

Price for which the currency of a country can be exchanged for another country's currency.
Factors that influence exchange rate include
(1) interest rates,
(2) inflation rate,
(3) trade balance,
(4) political stability,
(5) internal harmony,
(6) high degree of transparency in the conduct of leaders and administrators,
(7) general state of economy, and
(8) quality of governance.
In finance, the exchange rate (also known as the foreign foreign-exchange rate rate, forex rate or FX rate rate) between two currencies specifies how much one currency is worth in terms of the other.

For example an exchange rate of 1 Great Britain Pound (GBP £) to the United States dollar (USD, $) means that GBP is worth the same as USD 1.99.

The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day. The spot exchange rate refers to the current exchange rate.
The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.