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A New Method for Computing Letter of Credit Risks

Author

Listed:
  • Cheng Zhang
  • Ni Hu

Abstract

This study targets problems in the risk assessment and control processes of letter of credit settlements for Chinese export enterprises. It applies the quantitative method of exploratory factor analysis to extract the main factors and uses a confirmatory factor analysis to test the validity these constructs. VENSIM software is used to design the system dynamics causal tree and flowchart of the letter of credit system. The equation sets of DANAMO parameters are then constructed using the software. Finally, through analysis of the system risk fluctuation diagram with system simulation, it offers enterprises advice on how to identify potential risk points to prevent and control letter of credit risks in advance.

Suggested Citation

  • Cheng Zhang & Ni Hu, 2020. "A New Method for Computing Letter of Credit Risks," SAGE Open, , vol. 10(4), pages 21582440209, November.
    • Handle: RePEc:sae:sagope:v:10:y:2020:i:4:p:2158244020970214
    DOI: 10.1177/2158244020970214
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    References listed on IDEAS

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    1. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "No guarantees, no trade: How banks affect export patterns," Journal of International Economics, Elsevier, vol. 108(C), pages 338-350.
    2. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "International trade, risk and the role of banks," Journal of International Economics, Elsevier, vol. 107(C), pages 111-126.
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    Cited by:

    1. Nana Chai & Baofeng Shi & Bin Meng & Yizhe Dong, 2023. "Default Feature Selection in Credit Risk Modeling: Evidence From Chinese Small Enterprises," SAGE Open, , vol. 13(2), pages 21582440231, April.

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