Currency risk


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Currency risk

Currency Risk

In currency exchange, the possibility that one currency will devalue to the exchanger's detriment. For example, someone may move to the United Kingdom from the United States and change all of his/her money from dollars to pounds. If he/she moves back to the United States with the same amount of pounds, there is the possibility that the pound will have devalued, resulting in fewer dollars than he/she brought to the U.K. In 1996, economist Conway Lackman suggested an extension of the Capital Asset Pricing Model to help calculate exchange risk in international trade.
References in periodicals archive ?
However, if Britain joined the euro, pension fund managers would suddenly find that they had a much larger pool of assets in which to invest without currency risk.
The Report identifies the following possible reasons why adjustments have not been required: the comparable companies may experience similar currency exposure [a hint for selecting or evaluating comparables]; the tested party may not bear any currency risk [presumably this can be arranged by agreement]; the currency fluctuations may not have been material; or the taxpayer may be able to pass through substantially all of its currency risk to end users [suggesting, for example, the need to study the terms of contracts with major customers, market price elasticity, and the currency exposure of primary competitors].
This scenario will not develop overnight, implicating that there is no imminent currency risk to be covered when holding US dollar positions.
Interest Rate and Currency Risk. Banks, when confronted with a generally rising yield curve, have a tendency to incur interest rate or liquidity risk by lending long and funding short.
Investors should also consider currency risk, advises Neil Wolfson, a managing director at KPMG Peat Marwick's personal finance division.
Not only are the usual computations made for net operating income, projected appreciation and cash-on-cash return, but in addition, the indicated return must be adjusted for currency risk, given that dollars will have to be exchanged for the local currency in order to repatriate the invested funds.
EBRD said, this would help lower the company's currency risk by better matching its liabilities and assets.
Despite the growth in assets under management in currency-hedged ETFs, most actively managed equity fund managers still don't hedge currency risk, and that probably is at the detriment of their clients, agreed panelists at the Morningstar ETF conference in Chicago on Wednesday.
Koester, whose product provides visibility into currency exposures, says a company's first step in managing currency risk needs to be better understanding that risk.
Janet Heckman, EBRD Director for Kazakhstan, said: "This loan will significantly reduce KTZ's foreign currency risk. It is particularly significant for the EBRD as it is the first large local currency loan by the Bank under the new local currency facilities granted by the National Bank of Kazakhstan."
The latest Friends Provident International Investor Attitudes survey has revealed that Non-Resident Indian (NRI) respondents in the UAE, who send money to their home country, are not always aware of the currency risk.
Currency risk management addresses two kinds of risk, namely systematic and unsystematic risk.