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Risks Involved In Salam Contract


Salam is a type of forward sale in the sense that the delivery of the sale’s underlying (subject-matter) is deferred to a prespecified future date. Being a debt finance tool, salam is by its unique nature associated with a bunch of risk factors, some of which the buyer is exposed to, others are the seller’s exposure.

Risks on the buyer Risks on the seller
Prices: prices of commodities may decrease during the period between
the contract date and the delivery date.
Costs: Costs of the object of salam may increase over the period between
the contract date and the delivery date.
Non-delivery: Seller may refuse to deliver as agreed. Non-delivery: Buyer may refuse to take delivery as agreed.
Marketing considerations: Tastes and demand may change over the salam’s tenor. Assets/inventory: The seller may incur storage costs related to the object of salam.
Late delivery: the seller may delay delivery due to force majeure or unforeseen events. Late delivery: the buyer might not be able to take delivery as scheduled due to unforeseen
events.


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