In the context of international trade financing, what factors should be taken into account when conducting a risk assessment?

[Aadhira ACC]

In the context of international trade financing, what factors should be taken into account when conducting a risk assessment?

[Rasvya Banu]

When conducting a risk assessment in trade finance, it’s important to keep in mind the following factors:  The potential for a borrower to fail to repay a loan or other form of credit extended to them. This is usually determined by looking into the financial stability of both the buyer and the seller.  The risk that a trade finance counterparty won’t live up to their end of the deal is known as “counterparty risk.” This is typically determined by looking at the counterparty’s financial health and standing in the industry.  The risk of fraud is the danger posed by dishonesty on purpose. There is the potential for fraud on the part of the purchaser, the vendor, or the lender. Duplicate invoice financing, the use of falsified or fake documents, and collateral scams involving inventory are all examples of common scams in the trade finance industry. 

It is the possibility that the valuation of a trade finance transaction will decrease if the political, financial, or social situation in a country deteriorates. A common method for determining this is to look at the political and economic health of the countries involved.  Delivery problems (including loss, damage, or late arrival) are examples of logistical risks that could affect a transaction. The safety and effectiveness of the logistics chain is typically evaluated in this regard.  Threat that a trade finance deal will not adhere to applicable laws, regulations, or technical standards, also known as “compliance risk.” Anti-money-laundering (AML) and know-your-customer (KYC) regulations, sanctions laws, or other trade-related legislation are usually used to evaluate this.

[Farhana Begum]

Risk assessment is encouraged when dealing with trade finance. Risk management is the process of identifying, assessing, and selecting an appropriate response to an identified risk in a business transaction. Financial crime risk factors; risk mitigation; due diligence; a holistic evaluation of financial crime risk; and a holistic assessment of securities fraud risk are the four primary areas of focus.

All parties’ credit histories must be checked, and additional due diligence conducted on other parties as required. Consider the end-buyers’ and payments’ non-financial and financial risks before approving a transaction.

• This reply was modified 1 year, 10 months ago by Carin G Hansen.
• This reply was modified 1 year, 10 months ago by Carin G Hansen.

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