foreign exchange risk

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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 loan will be provided in local currency and will help mitigate foreign exchange risks both for MTBank and small companies with no foreign currency revenues.
Therefore, commercial contracts can now be agreed in RMB, allowing Chinese suppliers to invoice and receive settlement from UK buyers in local currency, enabling them to avoid foreign exchange risks and costs.
The bank's head of Consumer Financial Services, Charles Sik, said, 'Like the earlier scheme, customers will be able to take advantage of the fact that this is also a ringgit-based loan, hence mitigating the effects of fluctuating foreign exchange risks.
Despite foreign exchange risks, Taiwan life insurers still increased overseas investment by US$1.
But as the assets made use of derivatives trading, which can hedge foreign exchange risks, the tax bureau said the 15 percent rule was not applicable to foreign currency-denominated assets using derivatives trading and valuation losses could not be booked, according to Alico Japan.
As shown with the Canadian dollar and the Brazilian real examples, all foreign exchange risks are not the same.
Gelco clients will benefit by using the Gelco global solution: * Reduced administrative burden -- eliminates the need to deal with foreign exchange and high volumes of low value transactions * Detailed real-time reports -- comprehensive payments tracking and reporting * Low cost foreign exchange and low per-transfer fees Clients' employees benefit by: * Quick -- employees receive payment quickly * Simple -- payments are made electronically in local currencies, using in-country clearing systems * Cost effective -- reimbursement received is equal to the amount submitted -- no hidden fees or foreign exchange risks
Foreign exchange risks clearly affect every aspect of a business, and their management requires implementation of company-wide processes.
Second, they reviewed the conventional on-balance sheet and modern off-balance sheet approaches to managing credit, interest rate, and foreign exchange risks with emphasis on the use of derivatives.
The results under section 988 and the temporary hedging regulations, however, are not necessarily equivalent, and the rationale for the departure from both economic reality and consistent tax treatment for equivalent transactions involving hedging of foreign exchange risks is neither explained nor apparent.
According to Glover, "Client demand dictated that we further expand our east coast presence, and the addition of the Toronto office allows us to reach across markets and time zones, providing our clients with up-to-the-minute advice on how to best manage their foreign exchange risks in volatile markets.
The Bank of Thailand (BOT) encouraged and supported local business operators to trade with China in yuan to ease their foreign exchange risks and to expand their businesses simultaneously.

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