Risks in International Trade

International trade is the buying and selling of goods and services with countries around the world. Countries trade for various reasons such as a lack of raw materials in their own country. In order to make up for this they get these goods from other countries. There are exchanges made for food and finished products as well to make up for a countries lacking in these areas.

There are several advantages to international trade including an increase in company sales which increases the profits due to countries specializing in areas of land, labor and money to back such trades. Even with the benefits to international trade there are also risks to consider before participating in international trade.

Part of the risk involved is known as Country risk. Country risks are those that are in the buyer's country or that the country of the buyer causes. These risks can affect the payment to the seller and compromise political, social and economic parts of the trade. The things that can be affected can include the control regulations of exchange, government policies and any changes made to them, embargoes on trade and even a lack of foreign currency.

The political risks involve the stability of the countries government. An unstable government can lead to a bad economy and possible loss of revenue when performing international trade that involves such countries.

Taxes on trade must be considered as well. While it is not usually considered a risk factor the amount of the taxes do need to be taken into consideration prior to trading.

The other part of risk is known as Commercial risk. These are things that expose those involved in International trade to loss. The buyer's ability to pay due to financial restraints put on them can be compromised. The seller can have an inability to give the correct quality and or quantity of the goods or services provided. There is a danger of the bank not having the capability to honor the promises it has made.

When using the currency of the country that one is trading with the value of that currency against the currency in the country that they base business operations must be considered. A loss of profits can occur when the foreign countries currency is a value below their usual currency and money is lost when it is converted. To avoid this risk some countries merely exchange goods and services for other goods and services.

It is up to both parties to check the credentials and credibility of the other party.

Sources:
http://www.myownbusiness.org/s13/
https://www.fnb.co.za/commercial/international/imports/tradeRisk.html
http://www.answers.com/topic/net-exports?cat=biz-fin