foreign exchange risk

(redirected from 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 Philippines through the Bangko Sentral ng Pilipinas (BSP) and the Ministry of Finance of Japan (JMOF) will look into establishing a peso-yen direct trading link to reduce foreign exchange risks (forex) between the two currencies.
Southeast Asia central banks push local currency settlement for trades !-- -- Lawrence Agcaoili (The Philippine Star) - April 6, 2019 - 12:00am MANILA, Philippines Central banks in the Philippines, Indonesia, Malaysia and Thailand are pushing for the greater use of local currencies in settlement of trade and other areas to cut transaction costs and reduce foreign exchange risks. Bangko Sentral ng Pilipinas Governor Benjamin Diokno inked three letters of intent (LOI) as part of a regional cooperation to promote local currency settlement of the four central banks.
The borrowing mix for 2019 will be 75-domestic, 25-percent external as the government wanted to minimize foreign exchange risks.
Dominguez III explained that the modified financing mix will help ensure efficient borrowing and will shield the country from external shocks like foreign exchange risks.
Hedging against foreign exchange risks is an increasingly popular solution.
In addition, regulations applied to insurance companies regarding foreign exchange hedging and foreign investment will be eased: assets not hedged against foreign exchange risks have been considered not to have any time remaining to maturity, but part of the time remaining to maturity will be counted.
Abu Dhabi's International Petroleum Investment Company (IPIC) reported a net profit of $44.7 million on Wednesday, down from $1.3 billion in the prior-year period, as market volatility and currency exchange risks weighed on profitability.
Therefore, commercial contracts can now be agreed in RMB, allowing Chinese suppliers to invoice and receive settlement from UK buyers in local currency, enabling them to avoid foreign exchange risks and costs.
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.
The EBRD's director for agribusiness Gilles Mettetal said: "One of the EBRD's priorities since the crisis is to encourage local currency borrowing where it makes sense, in order to help customers avoid foreign exchange risks." A bank memorandum said that Russia's "glass packaging industry was seriously hit" by the fall in demand from brewers.
Despite foreign exchange risks, Taiwan life insurers still increased overseas investment by US$1.88 billion in the first two months, aiming to fully utilize huge idle funds, pushing overseas investments over US$94.33 billion, accounting for 32% of the industry's total disposable funds.
The company also expects its full year profit to decrease this fiscal year compared with last year because of lower coal prices, performance risks with its rail contractor Queensland Rail and foreign exchange risks.