Exchange risk

Exchange risk

The variability of a firm's value that results from unexpected exchange rate changes, or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.

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.
References in periodicals archive ?
Global Banking News-June 12, 2014--Wells Fargo International names head of Foreign Exchange Risk Management Group
US $250 million has been projected to be raised by the National Development Bank and DFCC Bank, each in foreign borrowings with the foreign exchange risk to be borne by the Treasury.
In addition to basics of risk management, he covers techniques of hedging, the role of information systems in exposure management, and presents select case studies of foreign exchange risk exposure management.
80% of Respondents Acknowledged Significant Foreign Exchange Exposure; Only 42% Indicated That They Hedge Their Foreign Exchange Risk -
dollars to eliminate currency exchange risk for the Wien & Malkin partnership.
This is, however, not to say that companies do not suffer from economic exchange risk.
Exchange rate fluctuations affect operating cash flows and firm value through the translation, transaction, and economic effects of exchange risk exposure.
Expanding hedging principles' scope to include foreign exchange risk (except for hedges of net investments in foreign entities).
distributor are in the seller's currency, the Service will likely attempt to adjust the prices to the distributor downward, and thereby increase its profit, in order to reflect the increased foreign exchange risk that it incurs.
Ramon Espinosa has been appointed head of Quantitative Research for its Foreign Exchange Risk Management Group.
This cuts shipping costs and puts us in the same currency zone as the customers, so we neutralize exchange risk.
As new companies are exposed to foreign exchange risk, managers will necessarily be concerned with the development of an effective hedging program.