To understand the role of Trade Finance in managing risk, we need to appreciate the inherent conflict when buyers and sellers in different locations interact. This pivotal risk management role becomes an enabler for providing working capital, since it affords the transparency and ‘hands on’ engagement that facilitates diligent commercial lending. It means that potential problems may be spotted before they can cause harm, allowing protective steps to be taken. It is a key contributor to Trade Finance’s low default experience.
Key learning objectives:
Understand how trade finance is used in relationship to risk management
Know what trade finance means in regards to working capital