foreign exchange risk

(redirected from Exchange-Rate Risk)

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 ?
Steep fluctuations in currencies resulting from global economic uncertainty have led investors to hedge exchange-rate risk on DGCX.
For exchange-rate risk index, Taiwan ranks fourth place worldwide and second place in Asia.
In short, there are better ways than gold to hedge inflation risk and exchange-rate risk.
Natura Cosmeticos SA, Brazil's biggest cosmetics maker, is shutting sales operations in Venezuela because of exchange-rate risk and "unbalanced" institutions, said CEO Alessandro Carlucci said, reports Bloomberg (Aug.
Foreign trade and exchange-rate risk in the G-7 countries: Cointegration and error-correction models.
The main trade-reducing effect, however, derives from exchange-rate risk, especially the risk of large, long-lasting changes in exchange rates.
economy, most nations suffer drop in the scores for operating risk and exchange-rate risk.
In the first place, it gives certainty to short-term investment and eliminates exchange-rate risk.
dollar, for clearance, thereby avoiding exchange-rate risk and boosting trade convenience.
Due to the difficulty in exchange-rate risk hedging, domestic insurance firms have invested only US$2-3 billion in the five European nations, including US$1-2 billion in Ireland and over US$1 billion in the four nations of Greece, Portugal, Spain, and Italy.