foreign exchange risk

(redirected from Exchange Rate 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 ?
" class="defaultFurthermore, the agency acknowledges that the credibility of the South African Reserve Bank and its inflation targeting regime remains an important credit strength, and government's debt structure helps to reduce refinancing and exchange rate risks. class="defaultLast week, Finance Minister Tito Mboweni announced in the Special Appropriation Bill that a team of officials led by Directors-General of National Treasury and Public Enterprises have considered a number of options as a solution to Eskom's debt challenge in order to ensure its sustainability, and the most viable of these will be communicated in due course.
By facilitating lending in the entrepreneurs local currency, we are protecting them from exchange rate risks while contributing to long-term business and economic development in the country.
It is also helping local companies use the yuan for business settlement in countries along the routes of the BRI.'As a Chinese company, we of course want to settle balances in yuan, which would help us avoid many exchange rate risks,' Fu said.
For example, if our government decides to focus primarily on importation, it discourages exploration, further exposing the country to higher prices like exchange rate risks, volatility of fuel prices in the world market and it can lead to possible supply hostage, which is a scary situation for our economy if you consider the possible geopolitical risks not only with fuel source but also in shipping.
A weakening peso, on the other hand, exposes a bank to changes in exchange rate risks. Banks may be affected from short-run exposure that arises from foreign exchange trading.
"Rupee movement in 2018 is likely to be marginal in our view but it's important to keep a tad of exchange rate risks in an environment of tightening monetary policies globally and rising concerns of a full blown trade-war.
Government's policy of borrowing in the local currency helped shield us from exchange rate risks. The Department of Finance maintains an 80-20 borrowing policy in favor of the peso.
Cushman (1986) described that a country might have indirect implications of exchange rate risks faced by some third-country through some trade partner.
According to recent reports, China now wants Pakistan to allow the usage of Renminbi (RMB) the official name of its currency in the Gwadar Free Zone in order to avoid exchange rate risks associated with the US dollar and the Pakistani rupee.
The central bank said that the banking sector is resilient against interest and exchange rate risks and its equity is above the level required to cover possible trouble.
All government guarantees carry no exchange rate risks.
He added that those debts have been accumulating over the past period, as they were not repaid due to the dollar crisis."The CBE is working to ease the burden on importers and to help them pay-off their debts and avoid the exchange rate risks, as well as to ease the demand on the dollar, both in the official and parallel market," he added.