Currency Risk

Filed Under »
Dictionary Says

Definition of 'Currency Risk'

A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Investopedia Says

Investopedia explains 'Currency Risk'

For example, if you are a U.S. investor and you have stocks in Canada, the return that you will realize is affected by both the change in the price of the stocks and the change in the value of the Canadian dollar against the U.S. dollar. So, if you realize a 15% return in your Canadian stocks but the Canadian dollar depreciates 15% against the U.S. dollar, this will amount to no gain at all.

Academic studies of currency risk suggest - although without absolute certainty - that investors bearing currency risk are not compensated with higher potential returns, meaning it is essentially a needless risk to bear.

Articles Of Interest

  1.

    Exploring Non-Dollar Currencies For Forex Trading

    Learn how investments in foreign currencies can diversify your portfolio.

  2. Hedge Against Exchange Rate Risk With Currency ETFs

    Currency moves are unpredictable and can have an adverse effect on portfolio returns. Find out how to protect yourself.

  3. Corporate Currency Risks Explained

    Transaction, translation and economic risks can affect a company's balance sheet.

  4. Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.

  5. Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.

  6. Finding Fortune In Foreign-Stock ETFs

    Think beyond your borders to reduce the impact of local market downturns.

  7. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  8. A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.

  9. The Ins And Outs Of Corporate Eurobonds

    Corporate eurobonds simplify expansion for MNCs, though there are a few more hoops to jump through.

  10. Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center