Transfer Risk
From Open Risk Manual
Contents
Definition
Transfer Risk is the risk of potential restrictions on the ability to remit funds across sovereign borders. It forms part of the overal Country Risk profile of sovereign region
Factors
Risk factors specific to the transfer and convertibility risk component of country risk are
- The preponderance of the rule of law and good governance;
- Any institutional constraints on restricting international trade and financial flows, such as membership of the WTO other trade agreements
- The degree of economic integration within the global economy and hence the potential trade and investment losses that would arise from intervening in private‐sector contracts;
- The degree of financial integration, including extent of restrictions and controls on capital flows in and out of the country;
Impact
Transfer risk events can lead to
- Market Risk: namely declines in the value of the assets affected
- In Crossborder Lending a more specific manifestation is that a borrower will not be able to convert local currency into foreign exchange and so will be unable to make debt service payments in foreign currency, hence increasing Credit Risk
