Page 23 - eBook: EXIM for Beginner

Currency risk (also referred to as financial risk) refers to the

risk of adverse fluctuations in exchange rates . Fluctuation

is common for exchange rates, or the value of one

currency in terms of another. Currency risk arises as a result
of international transactions that frequently involve more

than one national currency.

Fluctuations of a foreign country's currency can

diminish profits when converting back to the home

currency. Analyze the risk and rewards of making an

investment in another country. The currencies of stable
governments are less volatile than those of less-developed

countries. Hedging strategies could mitigate some of the

currency risk; however, your business is still at the mercy of
the vagaries of the local currency market. Sudden

changes in monetary policy will also affect currency rates.

Randolf Saint-Leger (Updated January 25, 2019)