Definition of Currency risk:
Uncertainty about the future value of a currency.
Currency risk, commonly referred to as exchange-rate risk, arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. Many institutional investors, such as hedge funds and mutual funds, and multinational corporations use forex, futures, options contracts, or other derivatives to hedge the risk.
Managing currency risk began to capture attention in the 1990s in response to the 1994 Latin American crisis when many countries in that region held foreign debt that exceeded their earning power and ability to repay. The 1997 Asian currency crisis, which started with the financial collapse of the Thai baht, kept the focus on exchange-rate risk in the years that followed.
How to use Currency risk in a sentence?
- Currency risk is the possibility of losing money due to unfavorable moves in exchange rates.
- Firms and individuals that operate in overseas markets are exposed to currency risk.
- Institutional investors, such as hedge funds and mutual funds, as well as major multinational corporations, hedge currency risk in the forex market, and with derivatives like futures and options.
Meaning of Currency risk & Currency risk Definition