Foreign-Exchange Risk

AAA

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".

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. China Investment Corporation - ...

    A government-sponsored entity of the People's Republic of China ...
  4. Export-Import Bank Of The United ...

    A federal agency responsible for facilitating international trade ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Transaction Exposure

    The risk, faced by companies involved in international trade, ...
Related Articles
  1. Options & Futures

    A Primer On The Forex Market

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

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  3. Mutual Funds & ETFs

    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.
  4. Forex

    How do you use a back-to-back loan?

    Back-to-back loans or parallel loans are a financial move used by companies to curb foreign exchange rate risk or currency risk. They are loan arrangements where companies loan each other money ...
  5. Forex

    What will happen to my U.S.-based stock portfolio if the U.S. dollar substantially decreases in value?

    The effect of a significant depreciation in the value of the U.S. dollar on the value of an investor's U.S-based portfolio is very much a function of the portfolio's contents. In other words, ...
  6. Economics

    What Is Happening To The BRIC Economies?

    Ten years ago, it was about the BRIC countries –Brazil, Russia, India, and China, and it was thought that capitalizing their resources would elevate them.
  7. Economics

    The Economic and Social Effects of Corruption

    Corruption results in inefficiencies in the operations of emerging economies, and prevents such economies from reaching the maximum level of development.
  8. Economics

    Sanctions & Falling Oil Prices Hit Ruble Hard

    Russia, through its aggressive actions, has brought upon itself sanctions which, coupled with falling oil prices, have adversely impacted its economy.
  9. Professionals

    How Mukesh Ambani Has Expanded Reliance Industry

    Mukesh Ambani has expanded Reliance Industries and increased its revenues, but his public image, and that of his company, have not fared as well.
  10. Options & Futures

    What percentage of the global economy is comprised of the forest products sector?

    Find out what percentage of the global economy is comprised of the forest products sector, and learn why coming up with an accurate estimate may be difficult.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center