In any business transaction, there are risks. However, these risks are enlarged when dealing internationally. Added to commercial risks present in a domestic transaction are foreign exchange risks as well as country risks.
Political Instability resulting from internal or external conflict can jeopardize any imports/exports transactions of the companies involved in trade activities with such countries. It may result in delayed payments at best to outright default at worst.
Adverse economic conditions in the country may get reflected in the poor paying capacity of the companies operating there (also, unstable currency).
In case of Trade Disputes, a solid legal framework assures a company of a quick and just solution.
Foreign Exchange Restrictions:
Forex restrictions in an importer’s country can limit an importer’s ability to make payments for its international purchases.
FOREIGN EXCHANGE RISKS
1. Foreign Currency Volatility:
A volatile foreign currency may result in uncertainty in terms of value of future payments in that currency.
1. Reliability of Information:
The very fact that International Trade partners are seperated by large geographical, cultural and political distances, implies that they tend to have limited information on each other’s financial standings and business track records. As a result, the mutual level of cofidence and trust on each otheris low.
2. Trade Dispute:
Dispute resolution mechanisms in each country are different and international trade disputes are more complicated to resolve that domestic trade disputes. Hence, in case of a default, unilateral termination of contract or any other trade dispute, the legal proceedings may turn out to be very expensive and long drawn.