Transfer Risk

Transfer Risk in foreign trade typically refers to the risk that the buyer cannot remit payment abroad due to political, economic, or foreign exchange control reasons in the importing country, thus causing collection risk for the exporter. It is a type of country risk, different from commercial risk (buyer's own default). It is common in settlement methods such as letters of credit, documentary collections, or open account, especially in countries with unstable politics or foreign exchange shortages. Exporters can transfer or mitigate this risk by purchasing export credit insurance, requiring advance payment, using confirmed letters of credit, or third-party guarantees. Note the distinction from 'Exchange Rate Risk': the latter refers to value loss due to exchange rate fluctuations, while transfer risk emphasizes obstruction of cross-border fund transfer. Additionally, in trade terms like FOB, CIF, 'Passing of Risk' refers to the risk of loss or damage to goods transferring from seller to buyer, which is different from the 'transfer risk' in this context and must be distinguished by context.