InternationalSettlementChapter13

RiskinInternationalSettlementChapter13RiskinInternationalSettlement

13.1TypesofRisksinInternationalSettlement13.2RiskandriskcontrolinInstrument13.3RiskandriskcontrolinRemittance13.4RiskandRiskControlinCollection13.5RiskandRiskControlinLetterofCredit13.6RisksandRiskControlinOtherpaymentmethods13.1TypesofRisksinInternationalSettlement

Basically,therearesixtypesofrisksexistingintheprocessofinternationalsettlement:politicalandlegalrisk,marketrisk,transferrisk,operationalrisk,creditrisk,andfraudrisk.PoliticalandlegalriskMarketriskTransferriskTheriskscausedbyviolationstotherelativepolicies,customsandregulationsanddefectsinlegaldocuments.Theriskrelatedtothechangeofthemarketvariable,suchasexchangerate,interestrateandcommodityprice.Itmeansthatbankcannotreceivetheproceedsontimeforthedysfunctionofbank’snetworkorthedifferenceoftransactiontimeandsystemamongdifferentcountries.OperationalriskCreditriskFraudriskItreferstotheriskcausedbytheoperationalmistakeItreferstotheriskcasedbythecreditworthinessoftheimporterandexporter,theimportermaynoteffectpaymentortheexportermaynotdeliverthegoodsascontracted.Itisakindofdeliberatedetrimentalactivitytoobtainsubstantialprofitbyunjustorwrongfulmethods.Itreferstoonepartydefraudsthebankortheotherpartyforfundsorgoodsbymendaciousdescription,forgeddocumentsandfalseevidence.13.2RiskandriskcontrolinInstrument1Thecharacteristicsofnegotiableinstrument:1）Whenabankreceivesabillofexchangeissuedbyimporter,aslongastheitemsonthebillofexchangeiscompleteandqualified,thebankhastopaytheexporternomattertheunderlyingtransactionisclosedornot.2）Presentmentmeanswhenthecreditorasksdebtortoperformliabilityoftheinstrument,hemustpresenttheinstrument.Iftheholderdoesn’tpresenttheinstrument,thedraweehasnoliabilitytopay.3）Therearedifferentlawsaboutnegotiableinstrumentsindifferentregions.Thosedifferentdefinitionsandstipulationsmaycauserisks.Riskinnegotiableinstrumentmainlyliesininstrumentfraud.Traditionally,instrumentfraudcanbeclassifiedintothreetypes.Usingfalseinstruments:Undersuchcircumstances,theinstrumentisnotrealbutforgedbythedefrauders.

Forginginstruments:Forginginstrumentsmeansmakingactofinstrumentinthenameofotherswithoutpermission.Falsifyinginstrument:Falsifyinginstrumentreferstowhobutnotauthorizedpersonchangesitemsexceptforthesignaturelikeamount,date,paymentplacewithoutauthorization.2Riskcontrolininstrument1）Confirmingtheproblemindocumentswithclientandthenhandlingthedocuments.2）Importer,exporterandclearingbankshouldcarefullyverifytheapparentauthenticityofdocument.3）Intheusingprocessofabill,relativepartiesshouldfollowsettlementprincipalsofissuance,acceptanceandapplicationofabill.13.3RiskandriskcontrolinRemittance1RiskinRemittancePaymentinadvanceTheimporterhastoeffectspaymentbeforehereceivesthegoods,sohemaytaketheriskoflosingtheproceedsorreceivingunqualifiedgoods.PaymentafterarrivalofgoodsTheexporterreceivestheproceedsafterthedeliveryofgoods,sohemaysuffertheriskthattheimporterrefusestopayandlossboththegoodsandproceeds.UnderremittanceTherisksthatboththeimporterandexporterarefacedwitharepoliticalriskandcreditrisk.2RiskControlinRemittanceConcerningtheriskcontrolforexporterunderremittance:First,generallyspeaking,theexportershouldavoidpaymentafterarrivalofgoodsforitshighrisk.Second,underpaymentinadvance,theexportershoulddetailthepaymenttimewith“paymentafter××daysbeforeshipment”or“paymentafter××daysaftershipment”.Third,theexportershouldchoosethepricetermscarefully,deliverthegoodsandcoverinsuranceintime.13.4RiskandRiskControlinCollection1RisksinCollection

Undercollection,exportertakesmorerisksthanimporterforcollectionisbasedoncommercialcreditotherthanbankcredit.Theriskundercleancollectionismainlynegotiableinstrumentrisk.Whileunderdocumentarycollection,therisksmainlyrefertomarketrisk,creditriskandrisksinqualityofgoods.MarketriskForexporter,Onceinterestrateorexchangerateincreases,exportermaysufferalossofexpectedearnings.CreditriskUnderD/A,exportermaybearriskoflosinggoodswithoutgetpaymentifimporterisnotcreditworthyorhasabadfinancialsituation.UnderD/P,importermaybearriskthatgoodsisnotqualifiedandsufferaloss.RisksingoodsDestroyorlostofgoodscausedbynaturaldisasteroraccidentduringshipment.Risksingoodsarecloselyrelatedwiththepriceterms.2Riskcontrolundercollection

Riskcontrolforexporter1）Exportershouldknowtherestraintoftradeandexchangecontrolofimportingcountryandcreditworthinessstatesofimporter.2）Exportercanchoosecleancollectionordocumentarycollectiontomakeadeal,exportershouldunderstandthekeypointsofeachcollectionmethod.3）Exportershouldcreatespecifieddocumentsandkeepdocumentsintegrated,accurateandauthenticanddelivergoodsinstrictaccordancewiththestipulationsofcontract.4）Exportershouldbeawarethattheamountofonesinglecollectionshouldnottoohigh.Thetenorofusancecollectionshouldnottoolong.Riskcontrolforimporterundercollection1）Importershouldmakeacomprehensiveunderstandingtothecreditstatusandoperatingstyleofexporter2）Importershouldchoosethefavorablepricetermsanddocumentsreleasingtermsbasedonthecreditstatusofexporterandthemarkettrendsofimportinggoods.3）Importershouldcheckthedocumentsstrictly.Riskcontrolforbankundercollection1)Bankshouldconductcollectionstrictlyaccordingtotherequirementsofthecollectioninstruction.2)Bankshouldstrengthenthesupervisionovertherecheckandthewholeconductionprocess.3)Bankshouldbescrupulouswhenprovidingfinancefacilityundercollection.13.5RiskandRiskControlinLetterofCredit

Basedonbankcredit,L/Cismuchsaferthanremittanceandcollection,buttherestillexistsomerisksforexporter,importerandbank.1RiskandRiskControlforexporterunderL/CExporterfacescreditrisksfromImporter:1)Importermaybehypercriticalwiththeunessentialdiscrepancyindocumentsandputofforevendeclinetoeffectpayment.2)Importermayissueacreditwithsoftclauseandriskyitems.3)ExportermayfaceL/CfraudriskfromimporterbyusingforgedL/C.So,exportershouldknowwhetherimporteriscreditworthybeforeitsignscontractwithhim.2RiskandRiskControlforimporterunderL/CForimporter,itfacescreditriskfromexporter:Ifexporterisincapabletofulfillthecontract,theimportercannotreceivethegoods,thuswastestheexpenditureonapplyingforL/Candmissesthebestsalesseason.Exportermayforgeinvoice,billofladingorotherdocuments,andimporterwouldpayagainstforgedtransportdocuments,thussuffersaloss.WhenimportergetstheL/Canddocuments,heorhisbankwillcheckthecreditanddocuments,ifthereisnodiscrepancy,hewillmakepayment.Butwhenhepicksupthegoods,ifthegoodsisnotaccordantwithdescriptionofgoodsonL/Canddocuments,thenimportersuffersaloss.4)

Besides,importertakesaseriousriskunderdeliveryagainstbankguarantee.

Sobeforesigningcontractwithexporter,importershouldmakeathoroughunderstandingaboutexporter’screditworthinessandoperationalstyle.3RiskandRiskControlforbankunderL/CRiskforbankunderL/CForissuingbankwhenitissuesaL/C,itundertakestheprimarypaymentobligation.Ifimporterrefusestopayorisincapabletopay,thenissuingbankhaspaytoexporter.Forexporter’sbankexporteroftensubmitsoriginalL/Casmortgagetoapplypackingloanfromexporter’sbank.Butifexporterdidnotmeetalltermsandconditionsofcontractforacertainreasonorexporterdidnotfulfillthecontractatall,thenthepledgedL/Cisofnoeffect,thusexporter’sbankwilllosethepackingloan.RiskControlforbankunderL/CForissuingbankIssuingbankusuallyrequiresimportertosubmitmargins,collateralsorwarranty.Andissuingbankwillcheckthecharacteristics,liquidityandinsuranceofgoodsandthecontrolofdocumentsoftitleunderL/C.Normally,issuingbankwillassessalineofcreditforL/Cbasedonthecreditofimporterandthecharacteristicsoftransaction.Forexporter’sbankExporter’sbankwilllistseriesofconditionsforexportertomeetandinvestigatethecreditstatusofexporter,theauthenticityofsalescontractandL/Candotherrelevantaspects.Besides,exporter’sbankshouldascertaintheloantenorbasedontheproductioncycleandtimeofdeliveringgoodsandkeepitwithinoneyear,determinetheamountofloanaccordingtotheexporter’screditstatusandcapabilitytopay.13.6RisksandRiskControlinOtherpaymentmethods1RisksandRiskControlinGuarantee

Underaguarantee,guarantortakesthegreatestrisks.1)Whenguarantorissuesademandguarantee,hemaysufferunreasonableclaimfrombeneficiary.2)Guarantormaysufferrisksfromapplicant.Underacreditguarantee,iftheapplicantdidn’tperformtheobligationincontract,thenguarantorhastocompensatetothebeneficiary.3)Guarantormaysufferrisksfromcounterguarantor.4)Guarantormaysufferrisksfromtermsandconditionsofguarantee.2RisksandRiskControlinFactoring

Theriskunderfactormainlyfocusonexporterandfactor.1)Commodityqualityriskisthemainrisktakingbyexporter.Ifitisdisputeaboutquantity,qualityordeliverydateofcommodity,thedisputeshouldbesettledbynegotiatingbetweenexporterandimporter.Importersometimesmaymakedisputedeliberatelytodelaypayment,thenexporterwillbefacedwithgreatpotentialrisk.2)Thefraudulenttransactionbetweenimporterandexporterisgreatriskforcommercialbankdoingfact