The International Financial Market in the 21st Century Essay

The International Financial Market in the 21st Century - Essay ExampleTo nurse themselves against these assays, parties to international transactions, especially the lenders, should take it upon themselves to ensure that the eventuality of disputes in the future will not suck them off guard by conducting extensive assessment of potential jeopardys attached to the transaction in the ahead of time stage of the documentation of the transaction and protecting themselves by adopting well-thought- by strategies to eliminate or at least derogate those risks. Roger McCormick (2007) defines effective risk as chiefly referring to the risk of loss when the document evidencing the transaction subsequently turns out not having the same legal effect as the parties intended it to be or when either or both parties institute adverse claims. Moreover, ensuring protection against legal risk is difficult considering that most of this type of risk, much(prenominal) as credit risk, currency rate, and interest risk, is volatile as well as usually brought on by the parties themselves. 1 The legal aspect of international finance is concerned with the assessment and identification of these legal risks, quantifying them and developing strategies that would completely eliminate and if not, at least minimise them. T subject 1 Risk in International Finance 2 In assessing the risk of lend to an entity with cross-border trading operations, the first step is to identify the risks that such(prenominal) entity is involved. Table 1 summarises the general risks entailed in conducting international financial transactions. These risks are categorized into firm-specific risks, country-specific risks, and global-specific risks. Firm-specific risks refer to the risk of loss resulting from the companys structure as an direct business and country-specific risks are those endemic in a particular country be showcase of its political, social, and legal structures. Global-specific risks, on the ot her hand, are those that are attached to forces operating on a global scale that may interrupt business operations such as terrorism. 3 The roles of these risks in the legal aspect of international finance are their general potential to cause business disruption and subsequent losses to business operations that may alter contractual foothold between parties who had previously entered into a contract of loan to finance a business operation in a territory outside of the state of the lender. In the example of the Oceania International and Lehman Wrecker proposed transaction, the risk of lending to the former by the latter can be first assessed by looking into the risks covered by Fig. 1. The loss or losses that Oceania International might incur if any of the risks enumerated therein materializes will inevitably affect the agreement between the two considering the possibility that Oceania International might not be able to meet its obligation of paying its loan. Of all the risks that a lender faces when lending money to an entity conducting business operations outside of the lenders state country risk is the most significant. Country risk has plough so important in the conduct of international finance that according to Hoti and McAleer (2002), various country risk rating agencies, such as the Economist Intelligence Unit, Euromoney, Institutional Investor, International Country Risk Guide, sours, Political Risk Services and Standard and Poors, have recently surfaced.