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The Role of Letters of Credit in Risk Management and International Trade

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Credit Risk Management and RAROC
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Hesham
Manager, Egypt

The Role of Letters of Credit in Risk Management and International Trade

What is in current financial risk management the role of the Letter of Credit (LOC)?
How can the LOC reduce risks in international trade?
The current economical crisis affects international trade and increases the probability of exposures, how can the LOC play a significant role in reducing most financial risks.
Thanks for your reactions...
 
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Emmanuel Duru
Analyst, Nigeria
 

The Role Letters of Credit can play in Risk Management and in International Trade

The understanding of what a letter of credit is, and the relevance in business, especially in international trade, is very important.
Letters of credit simply put will avoid the rigors of illicit transaction called money laundering, or block silly conduits/pipes for siphoning funds.
It prevent funds getting into the wrong hands thus, mitigating huge losses. It's safe and faster, dealing with reputable corresponding banks than with individuals.
It enables you to transfer your risk through a corporate body, who can indemnify you at any slightest circumstances. The only issue that need to be tackled is to hedge in exchange rate against fluctuations in the currency which may occur.
Again, the macroeconomic stability of host countries should be taken into consideration at the point of decision. Consider also cross-border policies transaction taxes and the economic policies at which your business is tailored; which should not be contraband items. These might help mitigate credit risk which are inherent in international trade/business.

 

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More on Credit Risk Management and RAROC:
Summary
Discussion Topics
topic Risk Versus Uncertainty
topic Meaning of Risk and Risk Events
👀The Role of Letters of Credit in Risk Management and International Trade
topic Banks have managed the wrong risks
topic Enterprise Risk Management
topic Risk Management in the Electrical Energy Sector
topic Introducing a Loss Event Database
topic Environmental Risk Factors by Saunders
🔥 Laboratory Biorisk Management
topic What are the Main Procedures of Operational Risk Management?
topic Global Financial Pandemonium
Special Interest Group

SIG Leader

Do you know a lot about Credit Risk Management and RAROC? Become our SIG Leader

Knowledge Center

Credit Risk Management and RAROC
Knowledge Center



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