Risks in International Payment System, their forms and tools of elimination Veronika Krajčíková Daniela Masárová FEMMPA 11th group

International payment system represents different ways of payment and settlement of claims and commitments between the subjects from different countries represents different ways of payment and settlement of claims and commitments between the subjects from different countries

Risks in international payment system 1. Credit risk 2. Liquidity risk 3. Operational risk 4. Legal risk 5. Foreign exchange risk

Credit risk is the risk of loss of principal or financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation is the risk of loss of principal or financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation the higher the perceived credit risk the higher the rate of interest that investors will demand for lending their capital the higher the perceived credit risk the higher the rate of interest that investors will demand for lending their capital

occurs when clearing, or settlement, payments are not made when due, even though one or more counterparties has sufficient funds to make the payments occurs when clearing, or settlement, payments are not made when due, even though one or more counterparties has sufficient funds to make the payments may be caused by temporary inability of counterparty to convert assets to cash or failure of counterparty’s bank may be caused by temporary inability of counterparty to convert assets to cash or failure of counterparty’s bank Liquidity risk

Operational risk Is a result of some technical failure in Is a result of some technical failure in  computer systems  telecommunication facilities  institutionalized procedures during trading or before settlement of transaction

Legal risk Legal risk represents the risk of loss because of the unexpected application of a law or regulation or because a contract cannot be enforced represents the risk of loss because of the unexpected application of a law or regulation or because a contract cannot be enforced

Foreign exchange risk represents the risk that investment´s value is changing due to changes in currency exchange rates represents the risk that investment´s value is changing due to changes in currency exchange rates affects businesses that export or import, as well as investor’s making (international investments) affects businesses that export or import, as well as investor’s making (international investments)

Elimination of risks payment instruments payment instruments  prepayment, cash payment, letter of credit, documentary collection securing of export division against commercial and political risks securing of export division against commercial and political risks  securing production risk, securing export guarantee

forms of foreign trade forms of foreign trade  factoring, forfaiting, leasing taking advantage of financial derivatives taking advantage of financial derivatives  options, swaps, hedging instruments taking advantage of law of exchange taking advantage of law of exchange  discount of bill, bank guarantee

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