Types of Foreign Exchange Risk

Currency market fluctuations can be a big concern for multinational businesses. Geo-political and natural events can trigger currency fluctuations. And hence, affect revenue and profit for businesses that have foreign operations. This is often referred to as Foreign Exchange risk.

In other words, foreign exchange risk is the risk of a business’s finances being affected by fluctuations in the exchange rates between currencies.

3 types of foreign exchange risk

  • Transaction risk

This is the risk faced by a company when it’s buying or selling something from a foreign company. The risk here is the adverse effect that the forex rate can have on a completed transaction before settlement.

If a vendor’s currency appreciates vis-à-vis your currency, you will have to make a larger payment in your domestic currency. This risk increases when there is a long time between entering a contract and settling it.

  • Economic or Forecast risk

Economic risk is the way in which a business is financially impacted by an unavoidable exposure to currency fluctuations due to shifts in the economic landscape.

Such risk can be the result of macroeconomic conditions, such as exchange rates, government regulations and geopolitical stability.

  • Translation risk

Translation risk or exposure refers to a situation where a parent company has a subsidiary in another country and the latter’s revenue is converted to the former’s currency at a lower value. As exchange rates fluctuate, there can be variation in the financial figures affecting the company’s stock price.

If you are looking for best currency exchange without any hassle in Fort Worth, Texas, call Texas Currency Exchange at 888-975-6009. At Texas Currency exchange, we will help you with any questions about exchange rates, the type of currency you will need for your travels and more.

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