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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.

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.


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Foreign exchange risk is not that simple to assess and may lead to more surprises in un-hedged risk than not.
In paragraph 21(c)(1), (for example, if foreign exchange risk is hedged, a foreign-currency-denominated asset for which a foreign currency transaction gain or loss is recognized in earnings) is deleted.
This discussion of risks is carried out against chapter 4's very useful background introduction to Japanese attitudes towards risks, and a discussion of the way in which domestic tax and accounting rules can lead to foreign exchange risk exposure (p.
 
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