Research On The Risk Evaluation Of Trade Finance Under Letter Of Credit

During the international trade, there is credit crisis between buyers and sellers. The buyer is worried about whether receiving the goods, while, the seller is worried about whether receiving the money. Being a settlement tool, documentary credit removes this crisis by using bank’s credit as a guarantee. Nowadays, documentary credit is widely used and the derivation of trade finance under documentary credit has been developing fast. According to statistics, more than seventy percent trade finance is under documentary credit. Trade finance under documentary credit is the most widely and mainly used way. As a kind of credit business, trade finance under documentary also has risks, such as credit risk, industry risk, country risk, and operational risk. Therefore, how to evaluate the risk of trade finance under documentary credit is the focal point in commercial bank. Base on the combination of theory and exercise, this article analysis the trade finance under documentary credit and builds export and import index system. By using XXX bank’s data and neutral network model, this article evaluate the risk of trade finance under documentary credit. As the scientific and objective evidence, the result can help commercial bank to decide whether make the business.The main contact is as follows:Firstly, this article introduces the background and meaning. Then, depend on the object and evaluation method, the literature review is made. The object of this study is risk of trade finance. There are lots of researches on it. After summarizing of these researches, these researchers always focus on legality and experimental points and mentioned risks are scattered. As to the evaluation methods, there are many choices and each has advantages and disadvantages. Considering the characteristics of the object and evaluation methods, this article choose BP neutral network as the risk evaluation method.Secondly, this article use one chapter to introduce the basic theory of trade finance under documentary credit and kind of trade finance business. In the principles of trade finance, the independence and documentary make it possible of documentary finance. In classification, it introduces some common businesses, such as packing credit, negotiation, forfeiting and so on.Thirdly, this article uses the progress of trade finance business as point of view. By analysis of negotiation and guarantee for production of bill of lading, the author gets the each risk of trade finance under documentary credit. Also, in this part, the author chooses the measurement for each risk. Finally, depend on the risk index and measurement, this article builds the index system of import and export trade finance under documentary credit.Finally, the author gets the data from investigation on XXX bank. Then the risk evaluation model is built by using the data and BP neutral network. This model will be used to analysis the XXX bank’s trade finance businesses. Following the steps, the author chooses MATLAB7.0 as analysis tool to exercise the data and predict the result. The result reaches 100% accuracy. Then, the author offers suggestions to avoid risks depend on the result.During the time of this article and in the area of trade finance under documentary credit, it is the first time that the author uses BP neutral network to evaluate risk and build the risk evolution model. This is a kind of innovation in the area. Beside, because of the limitation of investigation and security of data, this article regard the name of bank as XXX.