Commercial Risk
This refers to potential losses arising from weaknesses stemming from, or defects in, the underlying trade.
Such factors could include the quality or adequacy of the goods being traded or the robustness of the contracts and pricing terms.
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Corporate Risk
These are risks associated with the importing or exporting businesses and are primarily focused on their credit rating and any history of defaults, either through non-payment, non-delivery, or deficient delivery (e.g. faulty or damaged goods).
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Country Risk
A collection of risks associated with doing business with counterparties based in a foreign country, including exchange rate risk, political risk, and sovereign risk.
Factors to bear in mind when considering country risks include the current political climate in the country, the state of the local economy, the existence of reliable legal structures.
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Currency Risks
This is the risk posed by fluctuations in exchange rates that could affect payments and receipts in foreign currency.
Unless such risk is hedged, a trader has no control over the impact of exchange rate volatility, and in a worst-case scenario, such volatility can wipe out the entire profit and more that would have been accrued from the trade trans.
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Fraud Risk
These are risks typically associated with either unknowingly engaging with a fraudulent counterparty, receiving forged documents, or being the victim of an insurance scam.
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Manufacturing Risks
Manufacturing risks are particularly common for products that are tailor-made or have unique specifications.
Often sellers are required to cover costs of any readjustments of the product until the buyer sees fit because the product can’t be resold to other buyers.
These types of risks can be addressed as early as the product planning phase, which o.
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Product Risks
Product-related risks are those that the seller automatically has to accept.
As an integral part of their commitment, for example, they usually have to provide specified performance warranties, agreed maintenance, or service obligations.
The buyer must consider how external factors, such as negligence during production or extreme weather during shi.
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Transport Risks
These are the risks associated with the movement of the goods from the seller to the buyer.
About 80% of the world’s transportationof goods is carried out by sea, which gives rise to a number of risk factors, including storms, collisions, theft, leakage, spoilage, scuttling, piracy, fire, and robbery.
Cargo and transport risks can be reduced throug.
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What are the different types of trade finance credit products?
Lenders extend different types of trade finance-related credit products; typically, these are classified as either pre-shipment or post-shipment (sometimes called pre-receivable and post-receivable).
An example of a pre-shipment credit solution is Purchase Order (PO) Financing.
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What are trade finance risks?
Trade finance risks include:
(but are not limited to) payment risk performance risk and currency risk.
Conducting business on credit terms with any counterparty requires a lot of trust, particularly when the two parties are unknown to each other.
Conducting trade with a foreign partner in another country makes the process even more complicated. ,
What is a letter of credit in trade finance?
Trade finance allows companies to receive a cash payment based on accounts receivables in case of factoring.
A letter of credit might help the importer and exporter to enter a trade transaction and reduce the risk of nonpayment or non-receipt of goods.
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What is trade finance?
Business conducted on credit terms requires a lot of trust between the two parties, especially cross-border trade.
Trade Finance is a field of finance that supports the de-risking of transactions where trust is required.
Trade Finance uses transaction structures, insurance products, and financing solutions to facilitate commerce.
