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 futures are to be offered to help cushion against foreign-exchange risks. The move will also attract longer-term funding to the nation.
Smaller companies borrowing in foreign currency may not have foreign-currency-denominated income and are therefore exposed to foreign-exchange risks following the sharp depreciation of the local currency (the som) in 2017.
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.
Grzelak also noted that banks' net open position in US dollars is limited to no more than one per cent of capital, but indirect foreign-exchange risks are elevated, with nearly one-third of total lending in foreign currency, primarily US dollars.
It will help end-borrowers to avoid foreign-exchange risks by providing local currency sub-loans in Kyrgyz som.
NDFs are hedging instruments meant to shield firms from foreign-exchange risks, but are believed to be traded by some banks to generate income from currency speculation.
Core operating profit grew 35.2 percent at Nippon Life on increased interest and dividend revenues from overseas securities free of foreign-exchange risks. It also rose 9.1 percent at Meiji Yasuda owing to a cut in operating expenses.
Colombia issued a sovereign bond denominated in pesos, a sign of foreign-investor willingness to take on foreign-exchange risks. "This is a new benchmark which a lot of corporates are going to look at," says Walter Molano, a partner at BCP Securities in New York.
Banks' net open position in US dollars is limited to no more than 1 per cent of capital, but indirect foreign-exchange risks are elevated, with nearly one-third of total lending in foreign currency, primarily US dollars.
The two loans are under IFC s local currency finance program which allows IFC to provide loans in Renminbi to meet specific financing needs of its private sector clients in China and help them manage foreign-exchange risks.