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Currency Risk

Companies and investors alike whose assets stretch across national borders must face currency risk. Currency risk results from the fact that all currencies change, and their changes are never the same as each other. Because assets are spread in several countries, each with their own currency, there is a risk that the value of a currency in one country compared to another's will affect the assets negatively. Although an asset will retain the same cash value in that country, its value on the global market will fluctuate as the economy of the country fluctuates. Therefore, a change in value will be realized when the asset is finally exchanged back into another currency. From this general concept stems two types of currency risks - transaction risks and translation risks. Transaction risk is the direct risk of changing exchange rates negatively overtime, whereas translation risk refers to the related problems in accounting that can make reports and analysis inaccurate.

Fast Facts

  • when foreign currency is improved, gains are seen
  • when foreign currency drops, losses are seen

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Results 1-4 of 4 for "currency risk"

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