Types of Risk in doing International Business

Types of Insurance –

1) Cargo Insurance – This risk comes into picture if say goods catch fire or the ship sinks [1% of insured value and insured value is 110% of CIF (P)].

2) Risk Insurance – The risk of non-payment of foreign exchange. All these risks are covered by agencies like TATA AIG, Lombard. This risk comes into picture when the importer–

a. Becomes insolvent (Solvency risk)

b. Not come to collect the documents (DP Risk)

c. Collects the document, promises to pay but does not pay (DA Risk)

3) Fluctuation Risk Insurance – Covers the risk of currency fluctuation between giving quotation and payment against delivery of goods. Use of Option / Forward (Derivative products) to cover the risk.