Foreign Exchange Risk


DEFINITION of 'Foreign Exchange Risk'

1. The risk of an investment's value changing due to changes in currency exchange rates.
2. The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-rate risk".


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BREAKING DOWN 'Foreign Exchange Risk'

This risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or increase when the investment is sold and converted back into the original currency.

  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Foreign Currency Effects

    The gain or loss on foreign investments due to changes in the ...
  3. Leads And Lags

    The alteration of normal payment or receipts in a foreign exchange ...
  4. Overnight Trading

    The buying or selling of currencies between 9pm and 8am local ...
  5. Transaction Exposure

    The risk, faced by companies involved in international trade, ...
  6. Forex - FX

    The market in which currencies are traded. The forex market is ...
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