Managing International Trade Financing Risks Assignment Sample
International trade is a vast and complex field as parties involved often have to deal with unfamiliar counterparties, customs and regulations in cross-border transactions. This 2-day workshop will examine the different ways international traders can use financing instruments for managing risks associated with these deals. Participants will learn about risk mitigation techniques, documentation guidelines governing rules of payment methods, identifying warning signs when dealing discrepancies or frauds arising during an exchange process—and more!
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TOA,TMA,GBA Assignment sample of Managing International Trade Financing Risks module Singapore
At the end of this course, Singaporean students will be able to learn Managing International Trade Financing Risks module with the help of the following learning outcomes:
1.Understand the key risks in international trade financing
One of the key risks in international trade financing is credit risk. This is because there is the possibility that a counterparty may fail to meet their obligations under terms of a transaction, whether through bankruptcy or lack of financial stability. In this case, both parties are at risk for that loss and will need to perform due diligence on counteract ant partners before proceeding with transactions to minimize these risks.
International trade financing is a type of financing for international businesses. Different from domestic trading, the risk factors are usually higher and the risks cannot be easily controlled.
The following article will give an overview of three major types of risks in international trade finance, which include Currency Risk, Interest Rate Risk and Political Risk. Each type of risk has its own implications on international business operations; it’s difficult to control each different demand factor during overseas transactions; finally examine some good ways to control these risks.
2. Know governing rules & documentation for international trade
The governing rules and documentation for international trade vary depending on the type of goods.
For example, a company importing goods will encounter documentation at these stages:
1) Import license – customs may impose an import duty or tariff which is assessed based on the classification of the product in question. This may have to be paid upfront before any tax clearance can be obtained. Even if additional taxes are payable, other countries offer a range of reliefs such as VAT refunds when exported to restricted markets (e.g., Chinese-made textiles would not attract VAT in British retailers).
2) Goods Certificates – At this stage, certain imports need certification by regulatory authorities that the product in question complies with regulations – e.g., electrical safety (BS EN 60695), Pesticide Residues (APMIS/CAPS),
3) Export License – In some countries, trading requires export licenses to allow exports of products where they would not otherwise be permitted or which might have special review requirements, such as defense-related technology, certain chemicals and drugs. Depending on the country’s trade laws, a license may be required for imports from some destinations.
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3. Learn the different methods of payment & their inherent risks
There are many benefits to using credit versus debit, but the main difference is that when you make a purchase with credit, you’re loaning the money and paying interest.
The consequences of irresponsible repayment can be severe if high interest rates are imposed or not paid off before they accumulate to large balances. Also a significant detriment exists in that if your card number is ever stolen cash needs to be available for charges so at present time only “traditional” forms of payment offer 100% protection against fraud.
Debit cards provide instant access and quick transactions without borrowing costs as long as there’s sufficient funds in your account; however, overdrafts may occur which can result in high fees or penalties for insufficient funds on deposit.
Some people prefer paying with cash because it’s the only form of payment that requires your attention and a distraction from other tasks. You have to watch how much you are actually spending. However, this method also has security risks such as theft or loss of the cash which can result in losses for both buyer and seller.
4. Apply control measures to mitigate risk exposures
Control measures can be applied in a number of areas to mitigate the risk exposure to suppliers. Areas include focusing on supplier identification, analysis of data, international legal compliance with regard to bribery and corruption as well as ethical business practices.
In many cases, it is necessary for businesses to invest in proactive monitoring of key performance indicators that may indicate a potential risk exposure at the lowest possible cost. In some instances, changes may involve implementing control measures such as corrective or preventive actions or a revamp so that risks are controlled proactively before they become bigger problems.
5. Appreciate technology innovation driving changes in trade financing and control
Technology innovation is continuing to drive change in trade financing and control due to global fragmentation of products, the growth in cross-border transactions, and the lack of legal frameworks. In response, there is a need for technological innovations that address these changes.
The last two decades have seen a huge shift from paper contracts to online agreements which has led international trade finance and procurement professionals to rush with securing their data. In this time period small business’ imports/exports have grown as much as 7% per year while the number of authorized reportable cross-border payments increased by 50%.
This growth has been answered with stricter regulation and penalties on illegalities such as money laundering practices worldwide has compelled companies throughout all industries to feel the pressure from regulators and corporate risk managers who want assurance that their transactions in international markets follow rulebook.
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