Risks in International Trade
Let’s learn more about Risks in International Trade. Followings are the risk faced by the buyer and seller under International Trade.
- 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
Commercial risks exist in the domestic market too. But, their impact in the international market: is greater, in comparison. to domestic market. The changes in the international market are hazardous and difficult to anticipate. Suitability and acceptability of the product international market is rather difficult to gauge. Variations in demand and supply conditions are more unpredictable.
Most of the commercial risk s are to he borne by the exporters. Exporters cannot shift these risks to the professional risk bearers, paying insurance premium. The exporter is not, aware of the conditions in the foreign market as the way he is aware of domestic market. Long distances to travel along with cost and time implications distinguish international trade from domestic trade. The exporter cannot visit Paris with the same ease he does Mumbai from Bhopal. If goods are not sold or price realization is lower than anticipated, due to changes in demand or supply, the exporter has to bring back the goods, incurring additional freight cost or opt to sell the goods at a loss.
In the international. market, as in the domestic market, the presence of competitors influences the demand and supply conditions and the entry of new competitors depresses the market more. Further, local production may bring down prices. The introduction of substitutes to capture the market may take away the exporter’s share in the market.
