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Financial Risks of Conducting Business Internationally

March 29th, 2010 No comments

Recession and financial unrest have in recent years provided an uncomfortable reminder of the financial risk of international business. International corporations, financial institutions, and international investors have experienced that the profitability of their primary business has been adversely affected by major fluctuations in exchange rates, stock market prices and in the credit rating of counter parties. Additionally, the business risk inherent in the primary business of an international corporation, which is dealt with by long term strategic planning and business cycle monitoring, the international corporation has to deal with financial risks.

Interest rate risk – The risk of increased funding costs due to high rates of interest, which may dominate for longer or shorter periods.
Liquidity risk – The risk of running short of cash when liquidity in the banking system is scarce and expensive.
Credit risk. -The risk of losses due to the inability to pay by counter parties,

The internationalization of business has made the management of financial risk more important. It is a natural consequence of conducting international business that a corporation is exposed to one or more of the above financial risks.

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