Exchange rate risk

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There are 3 types of risk exposed in foreign exchange transactions:

  1. Economic exposure - the loss of sales that a domestic exporter might experience if the domestic currency appreciates relative to a foreign currency
  2. Translation exposure - the decline in the value of assets that are denominated in foreign currencies when those foreign currencies depreciate
  3. Transaction export - the risk that exchange rate fluctuations will make contracted future cash flows from foreign trade partners decrease in domestic currency value or make planned purchases of foreign goods more expensive



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