Risks of international trade what are they and types

Risks of international trade: what are they and types

The risks of international trade range from small risks that present little difficulty to larger errors that could complete the sale.

When conducting international negotiations, companies face different factors that represent a risk.

The list of risks that an international negotiation can face are varied and appear depending on what barrier, error, difficulty or variant the international sale transaction faces. 

What are the risks of international trade?

When we speak of risk in foreign trade or risk in international trade, we refer to the different dangers, fatalities, misfortunes or accidents that exist or that may exist when carrying out an international sale and purchase operation.

When a company is preparing to carry out an international sale operation, it must study and analyze its situation, the situation of the country where it is, that of its potential client and that of its client.

As the situation of the means of transport of the merchandise to be sent must also be analyzed and studied.

Types of international trade risks

The risks in international trade are divided depending on which aspect of the sale affects. The different types of foreign trade risks are:

Risk country

This type of risk in international trade occurs when there is the possibility of an eventuality occurring or materializing that directly affects a country and therefore also the companies that are in it. In turn, this type of risk in international trade is divided according to the different factors that are in danger. Country risk is divided into:

  • Administrative factors: when the country’s public administration contributes to risk.
  • Regulatory: when the operating conditions are not correctly applied to a company.
  • Political factors: when the company is directly affected by policies taken by the government. Also when the company is affected by decisions of the powers of a state.
  • Economic: the economic dangers of the country that may present a risk to the company.
  • Social and cultural factors: the different unexpected changes in the society and culture of a country.

Currency risk

Currency risk is very common in international negotiations. It occurs when there is a change or variation in a commodity’s price when it is transferred to another currency.

That is when the exporter’s country’s currency is different from that of the importer and there is a price change between one country and another.

Business risk

When we speak of business risk, we refer to a risk in international trade where the danger that exists is that the company does not have sufficient funds to carry out all its operations.

In other words, the income or funds of the company are not enough to make the payments necessary to carry out the operations.

Commercial risk

Commercial risk is the danger that the importer or debtor does not pay for the exported goods.

This type of risk is very common in international negotiations. Even more so with the growth of technology and the lack of confidence that is generated when making a sale.

Credit risk

Credit risk occurs when there is a possibility of economic loss arising from a breach of the obligations expressed in a contract.

Unlike commercial risk. In this risk, the danger exists is that the company, bank or financial institution does not comply with the contract and generates dissatisfaction in the client or importer.

Financial risk

A financial risk is the danger that exists that a financial operation is carried out that generates negative consequences within a company. If within a company there is the possibility that there is a risk that threatens the productivity of the company, there is a financial risk.

Political risks

Political risk is called different causes where the company cannot intervene, we find different types of risks:

  • Government legal.
  • Extralegal.
  • Policy changes.
  • Economic conditions.
  • Social instability.
  • Armed conflicts, among others.