foreign exchange risk

(redirected from Foreign-Exchange 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 two loans are under IFC s local currency finance program which allows IFC to provide loans in Renminbi to meet specific financing needs of its private sector clients in China and help them manage foreign-exchange risks.
Colombia issued a sovereign bond denominated in pesos, a sign of foreign-investor willingness to take on foreign-exchange risks.
Daewoo's trading business revolves around exports of group companies' heavy machinery, electric appliances, and automobiles, resulting in limited product diversification and subjecting the company to foreign-exchange risks.