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Currency Risk
Definition
Currency risk arises when you invest in other countries outside of your base currency. As the prices of the currencies change over time through the exchange (FX) rates, currency risk enters the equation. Managers can hedge their currency risk using futures, forwards, swaps and options.
Using the term Currency Risk :
The U.S. based CFO did not want to take currency risk in his foreign company investment, therefore he established a hedging program to reduce and/or eliminate this risk.
Pay Special Attention To :
As with all hedging transactions, it is sometimes better to remain unhedged as there is always a cost associated with hedging.
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Related terms
Futures , Forwards , Swaps , Options
