Currency risk

The risk that arises from a change in currency rates.

This can take the form of:

1. a receipt/payment of more or less home currency than expected when a transaction is settled (transaction risk)
2. a change in asset/liability values in a balance sheet, profit /loss in an income statement (translation risk), or
3. a change in competitiveness as rates change relative to buyers, suppliers or competitors (economic risk).

A more complex area of risk concerns contingent, or pre-transaction risk.

Also known as Currency exposure or Foreign exchange risk.

See also

• Contingent risk
• Cross-currency interest rate swap
• Foreign exchange risk
• Transaction exposure
• Translation exposure

Other links

Currency risk, Will Spinney, ACT 2009