foreign exchange risk

(redirected from Exchange-Rate Risk)

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 ?
One downside to such borrowing, however, is that it carries exchange-rate risk. When a local currency depreciates against the foreign currency in which debts are denominated, the bank or company must pay more to service its debt.
Exchange-rate risk warrants scrutiny for Nigerian banks because about 40% of assets and liabilities in Nigeria's banking sector are denominated in US dollars and not all banks operate with matched FC positions.
This leaves the Blue Jays in a partially exposed position with respect to exchange-rate risk, but not as much as it would be without the national revenue.
eliminating exchange-rate risk; and (2) lowering the ratio of general
The increasing interest-rate advantage has boosted the appeal of offshore refinancing, especially for companies with overseas earnings as they are less vulnerable to exchange-rate risk, according to Mahadev Iyer, chief financial officer and director at Essar Steel India.
Steep fluctuations in currencies resulting from global economic uncertainty have led investors to hedge exchange-rate risk on DGCX.
For exchange-rate risk index, Taiwan ranks fourth place worldwide and second place in Asia.
Global economic uncertainty has led to steep fluctuations in currencies, prompting investors to hedge exchange-rate risk on DGCX," CEO Eric Hasham told Gulf News.
In short, there are better ways than gold to hedge inflation risk and exchange-rate risk. TIPS, or their equivalent from other governments, provide safe inflation hedges, and explicit currency futures can offset exchange-rate risks.
Natura Cosmeticos SA, Brazil's biggest cosmetics maker, is shutting sales operations in Venezuela because of exchange-rate risk and "unbalanced" institutions, said CEO Alessandro Carlucci said, reports Bloomberg (Aug.
Foreign trade and exchange-rate risk in the G-7 countries: Cointegration and error-correction models.
The main trade-reducing effect, however, derives from exchange-rate risk, especially the risk of large, long-lasting changes in exchange rates.