Currency Risk
It is a risk of loss that arises due to the fluctuation in the foreign exchange rates. Currency Risk is also known as exchange rate risk. The holders of foreign currency traded investments face this type of a risk. For instance, in the case of foreign bonds where the principal and interest payments are made in a foreign currency.
It is very essential for investor, who invest or desire to invest in foreign trade, to understand the dynamics of this kind of a risk. This is because the total return on such investments are affected in a great way by the foreign currency exchange rates.
In a positive way, this risk can create various opportunities for the investors. It creates an opportunity for the investors to increase exposure to the foreign exchange markets.
Foreign Currency Investors to be more Alert
Currency Risk refers to the risk that emerges from the variation in the price of one currency as opposed to another. According to set targets, investors should identify the acceptable and non acceptable currency risks.
Investors should pay careful attention to those currency risks that can cause financial distress. There are a number of guides and frameworks that can help the investors in managing and measuring these risks.
