Several types of financial risk are encountered in international marketing¹; the major problems include commercial, political, and foreign exchange risk.
　　Commercial risks are handled essentially² as normal credit risks encountered in day-to-day business. They include solvency³, default, or refusal to pay bills. The major risk,__1__ which can only be dealt with through consistently effective management and marketing. One unique risk encountered by the international marketer involves financial adjustments. Such risk is encountered when a controversy⁴ arises about the quality of goods delivered, a dispute over contract terms, or__2__. One company, for example, shipped several hundred tons of dehydrated potatoes to a distributor in Germany. The distributor tested the shipment and declared it to be below acceptable taste and texture⁵ standards. The alternatives for the exporter were reducing the price, reselling the potatoes, or shipping⁶ them home again, each involving considerable cost.
　　Political risk relates to the problems of war or revolution, currency inconvertibility, expropriation or expulsion, and restriction⁷ or cancellation⁸ of import licenses⁹. Political risk is an environmental concern for all businesses. Management information systems and effective decision-making processes are the best defenses against political risk. As many companies have discovered, sometimes there is no way to avoid political risk,__3__.
　　Exchange-rate fluctuations¹⁰ inevitably¹¹ cause problems, but for many years, most firms could take protective action to minimize their unfavorable effects. Floating exchange rates of the world's major currencies have forced all marketers __4__. International Business Machine Corporation, for example, reported that exchange losses resulted in a dramatic 21.6 percent drop in their earnings¹² in the third quarter of 1981. __5__, devaluations of major currencies were infrequent and usually could be anticipated, but exchange-rate fluctuations in the float system are daily affairs.

Exercise:

A to be especially aware of exchange-rate fluctuations and the need to compensate for them in their financial planning
B any other disagreement over which payment is withheld
C however, is competition
D so marketers must be prepared to assume them or give up doing business in a particular market
E Before rates were permitted to float
F After serious consideration
Key: CBDAE

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