Trading in Higher-Risk Markets

Trade in relatively higher-risk markets can offer lucrative opportunities, but presents additional risk and usually additional transactional complexity, for example through unreliable communication and/or financial infrastructure.

When coupled with new or untested trading relationships between Importers and Exporters, conducting business in higher-risk markets requires a prudent approach and in-depth expertise about the market, and about the full range of payment, financing and risk mitigation options available. TD Global Trade Finance (GTF) has all the resources necessary to support your trade objectives in higher-risk markets.

Doing business in higher-risk markets, where volatility is higher and economic stability can be undermined in very short timeframes, requires a trade financing approach that considers appropriate risk management techniques, allowing Exporters to be paid when they have met their obligations, and protecting Importers from the risk of their goods not being shipped as agreed.

In such an instance, it may be appropriate to consider using a Letter of Credit (L/C) – a versatile banking instrument which protects Importers and Exporters from a variety of risks which may be beyond their control.

L/Cs can be used as security against financing, as is commonly done in parts of Asia, and they can be required in certain countries to secure scarce foreign currency to pay for selected imports into those countries.

In addition to facilitating transactions as noted above, L/Cs perform what is referred to as a "Credit Enhancement" function: they replace the payment undertaking of an Importer with that of an international bank, because the existence of an L/C assures the Exporter that the buyer’s bank will effect payment as agreed. L/Cs can also be structured to allow for financing, either up front, based on the existence of the L/C, or during the course of the transaction, between the time the Credit is issued, and the payment is due.

Letters of Credit may also be used to facilitate certain transactions where an experienced trader may be able to act as a middleman between buyer and seller. "Transferable L/Cs" can be useful and when properly managed, effective in such business transactions. Please contact us to learn more.

    April 17, 2014

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