Exchange risk

Exchange risk

The variability of a firm's value that results from unexpected exchange rate changes, or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.

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.
References in periodicals archive ?
Examples include the assumption of political risk for new projects in emerging market countries; the assumption of residual value risk in sales-leaseback transactions; performance risk in building a new facility; and protecting against fluctuation in commodity, interest rate or foreign exchange risk in project finance.
M2 EQUITYBITES-June 12, 2014-Wells Fargo Foreign Exchange Risk Management Group names Matthew Daniel as head of its FX team
10 October 2012 -- Pennsylvania, USA-based financial risk management advisory and technology solutions firm Chatham Financial said it has launched ChathamDirect for FX risk management, a cloud-based portfolio of applications designed to give corporations the ability to manage foreign currency exchange risk from strategy through reporting.
Godfrey is a vice president and foreign exchange risk analyst at Bank of America in San Francisco.
The objective was to provide financing in local currency to microfinance institutions, contributing to a reduction in their foreign exchange risk exposure and to the expansion of their local currency lending capacity to micro and small-sized enterprises in Latin America and the Caribbean.
6 July 2012 - A Ramon Espinosa has been hired as quantitative research head at the foreign exchange risk management team of Wells Fargo International Group, the foreign exchange specialist, part of Wells Fargo & Co (NYSE:WFC), said on Thursday.
Underwood was most recently working with FX Risk Advisors, a consultancy that specialises in foreign exchange risk management, and has previously worked at Standard Chartered (LSE: STAN) (STD.DE) (OTC: SCBFF) (HKG: 2888), Credit Agricole (EPA: ACA) (CAGR.PA) and Lehman Brothers (OTC: LEHMQ).
But these assignments may not be quite as attractive because cash flows may not be in a freely convertible currency and could be subject to significant exchange risk.
Since it does not have access to the local currency, the Group also utilizes sophisticated financial tools to fund Contactar while protecting against foreign exchange risk.
The guests were moreover given advice on how the bank could assist expand cross-border use of Renminbi, permit corporate banking customers to expand their overseas business, dispense with currency exchanges, lower the foreign exchange risk, and provide convenience to cross-border Renminbi settlements.
The overseas branches of MCB will handle settlement, remittance and yuan deposit services, as well as forward exchange contracts and other derivatives to help clients hedge their foreign exchange risk. The bank also expects to expand its business with non-Japanese companies by offering more products and services in yuan.
Of course, to use any new tool effectively, you must understand it, and derivatives are particularly daunting in that respect because they were originally created to help counterparties with unequal financial, regulatory, investment or economic outlooks exchange risk and return among one another.