foreign exchange risk

(redirected from Exchange Rate Risks)

Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out at a loss due to an adverse movement in exchange rates. In general, the risk of an adverse movement in exchange rates.

Foreign Exchange Risk

The risk that the return on an investment may be reduced or eliminated because of a change in the exchange rate of two currencies. For example, if an American has a CD in the United Kingdom worth 1 million British pounds and the exchange rate is 2 USD: 1 GBP, then the American effectively has $2 million in the CD. However, if the exchange rate changes significantly to, say, 1 USD: 1 GBP, then the American only has $1 million in the CD, even though he/she still has 1 million pounds. Foreign exchange risk is also called exchange rate risk.

foreign exchange risk

The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced. For example, if an investor residing in the United States purchases a bond denominated in Japanese yen, a deterioration in the rate at which the yen exchanges for dollars will reduce the investor's rate of return, since he or she must exchange the yen for dollars. Also called exchange rate risk.
References in periodicals archive ?
The CBE is working to ease the burden on importers and to help them pay-off their debts and avoid the exchange rate risks, as well as to ease the demand on the dollar, both in the official and parallel market," he added.
According to an ICBC official, as China is gradually becoming a major country in global commodity trading, enterprises have growing financial needs in commodity hedging and avoiding exchange rate risks.
Note that by doing so we explicitly maintain the same prices of regional market and exchange rate risks across different emerging market.
The new programme allows the EBRD to support private sector development by extending local currency-denominated loans to eligible banks, microfinance organisations and private enterprises so they can avoid taking on exchange rate risks.
Summary: Turkey is seeking to switch to payments in national currencies for $10 billion worth of trade with neighboring Iran to lessen exchange rate risks and bolster trade volumes, a Turkish government source said on Friday.
Global businesses take exchange rates into consideration in making investment decisions, but market opportunity, political risk and the legal environment are all more important for foreign investment decisions than exchange rate risks, the study found.
Global businesses take exchange rates into consideration in making investment decisions, but market opportunity, political risk, and the legal environment are all more important for foreign investment decisions than exchange rate risks.
This benefit can be passed on to borrowers without exposing them to exchange rate risks.
Ford is due to close one of Mazda's plants in Hiroshima in September and switch its output to a factory in Valencia, Spain, in 2003 as part of a policy to base production close to demand and reduce exchange rate risks.
The system indicates exchange rate risks for Mexico, Chile and Venezuela, all with floating currencies, fall between the risks for Argentina and Brazil.
But the giants of Euroland had fixed exchange rates for years, so the new scheme offers Germany and France only a modest reduction in transactions costs and exchange rate risks.
1) Our study shows that an exporting firm can benefit from hedging exchange rate risks even when no perfect hedge is possible.