foreign exchange risk

(redirected from Foreign-Exchange 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 ?
A foreign-exchange risk is always present for one of the parties in an international business transaction.
In Indonesia, corporations must supply information on the potential foreign-exchange risk, whether they intend to hedge, as well as their dollar and rupiah cash flows under rules put in place by the Financial Services Authority in 2002.
Chief Executive Stefan Jacoby stated that he expects this step as a method to help his company decrease foreign-exchange risk.
The company is reviewing these arrangements and their documentation to hedge against future foreign-exchange risk. Discounting the unrealized loss, the company earned $14.8 million.
Moreover, other market risks, such as foreign-exchange risk or commodity-price risk, may affect your business decisions.
The recovery uplift is capped at one notch, as Fitch views the programme as significantly exposed to foreign-exchange risk from recoveries given default of the covered bonds.
The list was updated as part of the implementation of technical standards (ITS) that were drafted for the purposes of calculating the capital requirements for foreign-exchange risk according to the standardised rules.
"[The use of yuan] will encourage more trade because it minimizes foreign-exchange risk," Tetangco said in the forum organized by the Foreign Correspondents Association of the Philippines (Focap).
Each fund will provide a share-class denominated in yuan to cater to investors from China who do not want to take foreign-exchange risk, the bank said.
Master trusts separate back-office services for pension funds from investment services for the same funds to create unified trustee accounts for custody, settlement, receipt of interest and dividend payments, foreign-exchange risk management and other administrative functions.
As such, the investors bear the foreign-exchange risk due to a weaker rupiah.

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