Financing Trade with India

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Trade with India If I were financing trade with India, my biggest worry would be on Foreign Currency Translation Risk. This relates to conversion of a bank's financial statements from one currency to another. At a time when international credit markets experienced gross inflows of short term credit to India, major world economies were facing economic down turn. Even the United States whose currency is used in major international trade was at this time grappling with recession. The dollar lost marginally against major world currencies. There were variations in accounting values for international credit markets equity accounts that resulted from variations in exchange rates used in translating carrying values and income streams in foreign currencies to U.S dollars. Translation risks must have been occasioned by exposure to fluctuations in exchange rates in circumstances when foreign currencies were used. The risk depends on whether the financing institution creates an open position. The size of maturity gap and settlement uncertainties also determines the level of risk (Comptroller of the Currency Administrator of National Banks, 1998). Another concern for a person financing trade with India would be Transaction risk. This is related to issues pertaining to fraud, error, and inability to deliver products and services. Transaction risk is more of an operational risk. It arises when there is high level of documentation required in letter of credit operations. Repayment is
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