Risk & Insurance

Transactions across international borders are fraught with risk and complexity

Risk & Insurance

Businesses engaged in global trade have to deal with not only their local business risks, but also a number of global business development risks associated with currency, credit, intellectual property, transportation and ethics. In addition transactions across international borders are fraught with risk and complexity. Faced with this, many firms and investors can baulk at engaging in such transactions, even when they know them to be profitable, valuable enterprises. Through its array of insurance and guarantee products, Global Trading can secure international commercial contracts and mitigate risks to investment.

Global Trading utilises many available tools to limit the effects of these risks on trade.

Foreign Exchange Risk

Foreign exchange risk usually concerns accounts receivable and payable for contracts that are or soon will be in force. Foreign exchange rates are constantly in flux, so businesses can be forced to convert funds generated abroad at lower rates than they budgeted. That is why it is imperative that Global Trading has a foreign exchange policy in place to:
  • Stabilise profit margins on sales.
  • Mitigate the negative impact of exchange rate fluctuations on procurement and sales.
  • Enhance cash flow control.
  • Simplify foreign and domestic pricing.
In order to formulate an adequate foreign exchange policy, Global Trading will assess any foreign exchange risks, identify the tools available to hedge these risks and carry out a regular comparative analysis to select the most effective tools.

Some of our foreign exchange policies we use:
  • Natural Hedging:
    With this type of hedging, the business generates the majority of its revenues and expenses in the same foreign currency but does not hedge the difference between payables and receivables.
  • Selective Hedging:
    This type of hedging covers some foreign exchange transactions when it is difficult to predict needs.
  • Systematic Hedging:
    This type of hedging covers all foreign exchange transactions to eliminate the impact of foreign exchange fluctuations on profit margin.
Here are the main currency hedging tools we use:
  • Currency Forward:
    A forward contract between 2 parties spells out the conditions for the sale or purchase of a specified amount of currency (rate, date). In some cases the contract can be open-ended or fixed to provide greater flexibility on delivery.
  • Swap:
    In a swap, 2 cross trades are carried out at the same time in equivalent amounts. They are used to match foreign currency inflows and outflows occurring on different dates and to move a currency forward up or back.
  • Vanilla Option:
    A vanilla option is used to transfer the foreign exchange risk to a third party in exchange for a premium. Business reserves the right to purchase a specified amount of currency from the third party on a set date at a pre-determined rate.

Shipping Risks

Whether shipping goods locally or abroad, you face risks such as breakage, loss, theft, vandalism, accident, seizure and contamination. Before you ship any goods, transfer responsibility for shipping to the buyer or seller and take out sufficient insurance. The International Chamber of Commerce's Incoterms set out each party's roles and responsibilities with regard to shipping risk. It is best to work with a forwarding agent.

Ethics Risks

Global Trading has high ethical standards. Operating in global markets can sometimes lead to businesses to question their values. Global Trading is vigilant as customs and social conditions vary from country to country. We will make sure foreign partners and suppliers adhere to our high ethics rules and values. For more information please contact us at any time or message us via WhatsApp or Skype.