Trade Credit and Risk Management

Description

This book offers managers a complete analysis of the various issues of credit risk management for trade credit financing instruments supported by applications to various types of markets and presents an analysis on risks associated with trade credit in supply chains. Trade credit finance is characterized by strong attractiveness deriving from risk mitigation, but the plurality of sources of credit risk (default and dilution risk) requires the implementation of a credit risk management system that exploits the broad knowledge developed by financing supply relationships. Consequently, financiers could be hindered from developing a full understanding of the underwritten risks and are thus unable or only partially able to evaluate their full potential to expand financial relationships over the credit capability of a single counterparty with respect to the supplier-debtor pair. The richness of the information available in trade credit financing is not an obstacle for the development of a modern risk management framework, but it must be calibrated to avoid distortions in the implementation. In addition, risk analysis in the supply chain is not limited to the crises of individual members but must assess the effects of such crisis on the entire supply chain and assess the specific risks of contagion and the favorable conditions for the propagation. This book offers managers a complete analysis of the various issues of credit risk management for trade credit financing instruments supported by applications to various types of markets and presents an analysis on risks associated with trade credit in supply chains. Cover Trade Credit and Risk Management Dedication Brief Contents Contents Introduction Chapter 1: Risk Management for Trade Credit Financing Instruments Introduction Trade Credit Financing and Credit Risk Exposure An Internal Rating System for Trade Credit Financing Instruments An Internal Rating System for Exposures Based on Purchased/Assigned Trade Receivables An Internal Rating System for Exposures Backed by Trade Receivables Credit Risk Parameters: Theoretical Features and Empirical Evidence Default Risk Probability Default Loss Given Default Exposure at Default Maturity Dilution Risk Concentration Risk: Alternative Approaches and Empirical Evidence Conclusions Chapter 2: Application of Credit Risk Measures to Internal Processes Introduction Credit Risk Origination Credit Risk Control Credit Risk Management Conclusions Chapter 3: Trade Credit Instruments in Capital Adequacy Regulation Introduction Credit Risk Capital Requirements: A Holistic View Trade Credit Financing Instruments under theStandardized Methodology Trade Credit Financing Instruments under the IRB Methodology Exposures Based on Purchased Trade Credits Exposures Collateralized by Trade Credits Capital Regulation on Large Exposures Conclusions Chapter 4: Risk Mitigation of Trade Credit and Distress along the Supply Chain Introduction Literature Background Data Methodology Empirical Results. Conclusions Conclusions References Annex About the Author Index Ad Page Back Cover