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 ?
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.
In response to interest rate and exchange rate risks, ICBC offers global SDR bond investors customized hedging solutions, and successfully helps Chinese investors with hedging transactions to lock interest income and matured principal.
Summary: Exchange rate risks could leave countries issuing sovereign bonds with losses in the billions of dollars
2006) and Guesmi and Nguyen (2011), we model the time-varying prices of regional and local market risks as well as the time-varying price of exchange rate risks by a linear function of a set of regional and local information variables ([X.
The new programme allows the EBRD to support private sector development by extending local currency-denominated loans to eligible banks, microfinance organisations and private enterprises so they can avoid taking on exchange rate risks.
However, ICRA notes that despite high level of receivables, FTIL's working capital intensity remains low supported by significant advances from customers and that the company also hedges a portion of its foreign currency receivables to an extent, thereby providing some respite against exchange rate risks.
Summary: Turkey is seeking to switch to payments in national currencies for $10 billion worth of trade with neighboring Iran to lessen exchange rate risks and bolster trade volumes, a Turkish government source said on Friday.
Global businesses take exchange rates into consideration in making investment decisions, but market opportunity, political risk and the legal environment are all more important for foreign investment decisions than exchange rate risks, the study found.
This benefit can be passed on to borrowers without exposing them to exchange rate risks.
Ford is due to close one of Mazda's plants in Hiroshima in September and switch its output to a factory in Valencia, Spain, in 2003 as part of a policy to base production close to demand and reduce exchange rate risks.
The system indicates exchange rate risks for Mexico, Chile and Venezuela, all with floating currencies, fall between the risks for Argentina and Brazil.