Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Define Foreign exchange risk.
Expert Solution
Foreign Exchange Risk:
The term foreign exchange risk is defined as, the risk of an ominous variation in the settlement value of an exchange entered in a currency other than the local or domestic currency. This risk emerges because of shifts in the local currency rates or the denominated currency rates. It is also termed as currency risk or exchange rate risk.
The foreign exchange risk is classified under three types, they are as follows:
- Transaction risk
- Translation risk
- Economic risk
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