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 Chinese authorities wanted to avoid currency exchange risks attached with the use of the US dollar and the Pak rupee.
As per Richard Jones, head of the EBRD Resident Office in Dushanbe,"The funding will help FINCA Tajikistan to further expand its lending operations, contributing to the development of micro and small enterprises in the country.It will also allow local borrowers, whose revenue streams are predominately in somoni (the currency of Tajikistan), to take medium-term loans in local currency, thus eliminating currency exchange risks .
MHI has been looking to fortify its global business structure to attract more orders and at the same time evade currency exchange risks. Qingdao Jieneng Steam Turbine Group has been seeking expansion into markets for medium-size steam turbines and marine-use steam turbines.
The end of currency exchange risks and costs helped integrate European markets, boosting trade between member states, a move that helped German small business in particular.
With this three-year senior loan, the EBRD is increasing the availability of medium-term local currency lending to entrepreneurs in Kyrgyz Republic, especially in the country's remote rural areas, and helping them avoid taking on currency exchange risks. According to the recently approved new EBRD country strategy for the Kyrgyz Republic, the EBRD will aim to extend local currency lending in order to build up local sources of domestic funding and reduce the use of foreign exchange in the country's financial system.
dollar as its legal tender, virtually eliminating any currency exchange risks to foreign companies operating there.
It is offering an exclusive five-year tracker with initial pay rate of 4.29 per cent which is based on on lower euro money rates but with no currency exchange risks.
This paper examines one element of financial institutions doing business internationally: currency exchange risks. Such risks present significant barriers to profitably and competitively expand financial service markets.
dollar reduce currency exchange risks. It also said the yen's internationalization would help bar the dollar and the euro from dominating global financial markets and help investors hedge their bets.
It will also allow local borrowers, whose revenue streams are predominately in somoni, to take medium-term loans in local currency, thus eliminating currency exchange risks.
The local currency portion of the loan is provided under the EBRD's new Local Currency Lending Programme in early transition countries (ETC), which aims to support private sector development by ensuring the Kyrgyz borrowers, including local enterprises, banks and microfinance organisations, avoid taking on currency exchange risks. The loan was arranged under the EBRD's MSME Credit Line, consisting of two tranches of US$ 10 million each, which provides a much-needed and sizeable investment in the sector.
The move is designed to reduce currency exchange risks and curb the firm's reliance on commercial banks in financing, the sources said.