What is trade risk and its categories?
There are two sides to investing in risk assets for an entrepreneur. One can lead to losses, but at the same time – to a high income. Therefore, market activity requires from a specialist a clear analysis of operations, assessment of the probability of failure and benefits. Trade risk arises when one of the parties to the agreement does not perform its duties. A vivid example of this situation is the late delivery of goods, the lack of payment for it or its postponement without prior agreement.
Almost every investor has experienced a loss of capital when investing in an asset. It’s called an investment risk. And for ordinary people the variant when the national currency loses its price and purchasing power of money decreases is terrible. This risk is called inflationary. It is characterized by the likelihood that capital will depreciate as a result of inflation. The consumer’s understanding is as follows: prices in stores are rising and income levels are not, which affects purchasing power.
There is also the risk of losses in foreign currency transactions. Course fluctuations are observed by a number of factors, both foreign and domestic. Tracking the value of currency is important in export and import transactions.
Trade risks are also divided into internal and external risks. The former are observed when one of the parties suffers a loss or does not receive the agreed profit. This case can be observed both through the fault of the partner, and due to circumstances that can not be influenced by the parties to the transaction. Therefore, it is important to assess the likely complications in advance and take measures to reduce their harm to the organization.
Internal risks depend on the parties to the agreement. Most often they are connected with inability to organize production and business processes, lack of coordination in actions of participants. Factors that affect the level of internal risks:
- how well marketing is organized;
- specifics of management;
- cost of production;
- organization of advertising campaigns and sales systems.
Trade risks are difficult to classify accurately due to their diversity. In the normal course of business, any company faces the possibility of incurring losses, regardless of the length of contracts.
Important attention should be paid to the risks associated with political processes. Complex trade relations between the U.S. and China have led to the need to review many transactions not only in the case of international cooperation, but also within the country. Losses can involve large sums of money that cannot always be fully compensated for.