Currency risk<\/strong>, also known as exchange rate risk<\/strong> or foreign exchange risk<\/strong>, refers to the possibility that changes in exchange rates will negatively affect the value of an investment, transaction, or financial position. <\/p>\n In simple terms, currency risk arises when the value of one currency changes relative to another.<\/p>\n This risk commonly affects:<\/p>\n International investors<\/p>\n<\/li>\n Multinational companies<\/p>\n<\/li>\n Importers and exporters<\/p>\n<\/li>\n Forex traders<\/p>\n<\/li>\n<\/ul>\n For example, an investor who holds assets denominated in a foreign currency may experience gains or losses if exchange rates move before the investment is converted back into their home currency.<\/p>\n Currency risk is primarily driven by fluctuations in exchange rates.<\/p>\n These fluctuations can occur due to a variety of economic, political, and market-related factors. <\/p>\n Common factors that influence currency values include:<\/p>\n Interest rate changes<\/p>\n<\/li>\n Inflation levels<\/p>\n<\/li>\n Economic growth<\/p>\n<\/li>\n Political stability<\/p>\n<\/li>\n Central bank policies<\/p>\n<\/li>\n Market sentiment<\/p>\n<\/li>\n<\/ul>\n Because currencies are constantly traded in global markets<\/a>, exchange rates can change rapidly and affect the value of international transactions and investments. <\/p>\n There are several forms of currency risk that businesses and investors may encounter.<\/p>\n Main types of currency risk:<\/p>\n\n
What causes currency risk?<\/h2>\n
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Types of currency risk<\/h2>\n