Foreign exchange risk

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The risk of losses or other adverse effects resulting from a change in a foreign exchange rate, or from other unfavourable changes in relation to a foreign currency.

Examples include:

  • A final receipt/payment of a different amount of domestic currency equivalent, than expected when a currency transaction was committed to (transaction risk)
  • A change in asset/liability values in a balance sheet, or profit/loss in an income statement or both (translation risk)
  • A change in competitiveness as rates change relative to buyers, suppliers or competitors (economic risk).

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

Also known as Currency exposure or Currency risk.

See also