foreign exchange risk

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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 ?
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.
The loan will be provided in local currency and will help mitigate foreign exchange risks both for MTBank and small companies with no foreign currency revenues.
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.
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.
Global Banking News-September 12, 2011--Global foreign exchange risks set to increase, Sberbank(C)2011 ENPublishing - http://www.
Despite foreign exchange risks, Taiwan life insurers still increased overseas investment by US$1.
But as the assets made use of derivatives trading, which can hedge foreign exchange risks, the tax bureau said the 15 percent rule was not applicable to foreign currency-denominated assets using derivatives trading and valuation losses could not be booked, according to Alico Japan.
As shown with the Canadian dollar and the Brazilian real examples, all foreign exchange risks are not the same.
Foreign exchange risks clearly affect every aspect of a business, and their management requires implementation of company-wide processes.
Second, they reviewed the conventional on-balance sheet and modern off-balance sheet approaches to managing credit, interest rate, and foreign exchange risks with emphasis on the use of derivatives.
The results under section 988 and the temporary hedging regulations, however, are not necessarily equivalent, and the rationale for the departure from both economic reality and consistent tax treatment for equivalent transactions involving hedging of foreign exchange risks is neither explained nor apparent.

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