foreign exchange risk

(redirected from Foreign 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.
S&P's report said that the Egyptian government has sought to diversify debt sources by raising long-term debt levels to deal with this type of risk; however, this could expose the government to foreign exchange risks.
This helps to mitigate microfinance institutions' exposure to foreign exchange risks.
It administrates the Republic of Austrias guarantees covering commercial, political and foreign exchange risks in connection with Austrian exports and also provides medium- and long-term financing to banks and foreign importers for Austrian export transactions.
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.
FIH Erhvervsbank offers loans and financial solutions to medium-sized Danish enterprises, financial advisory services, customer-oriented advisory and trading services in derivatives for the hedging of interest rate and foreign exchange risks and pricing foreign exchange and interest rate products among others.
This will allow the avoidance of foreign exchange risks and costs, which is also expected to benefit UK businesses by allowing them to negotiate favourable terms for goods and services being purchased.
In contrast, makers of information telecommunication gadgets, home appliances, textile and other light industry products are found to be heavily exposed to foreign exchange risks.

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