Exchange Risk Exchange Risk
(1) In Global Trade, the risk of purchasing or selling merchandise with the price denominated in a currency other than that of the purchaser or seller.
Example: The U.S. seller sells in U.S. dollars so that his foreign buyer pays in U.S. dollars, a "foreign" currency to him. At the time of payment, the foreign buyer must purchase U.S. dollars in order to pay for goods. If the buyer has not made prior arrangements to purchase the U.S. dollars at a certain price, he has the risk that the dollars may have risen in value and cost him more than he had calculated. Thus, exchange risk is the risk involved in purchasing or selling in a foreign currency.
(2) In Foreign Exchange, the risk of market fluctuation of an asset or liability denominated in a foreign currency, such as the ownership of a currency, spot or forward, or trade accounts payable/receivable in a foreign currency.
See related terms: