Currency Risk – What is Currency Risk?

What is Currency Risk?

Definition of Currency Risk:
This is sometimes also referred as a foreign exchange rate danger. It is defined as the possibility in which a financial depreciation can affect the cost of assets and investments in a negative manner, mainly those securities which are dominated by the foreign currency. Several corporations with the operations in foreign exchange markets are uncovered to the currency danger as their financial consequences must be united into home currency of the company. Investment managers and corporate treasurers, mainly with the huge multi national organizations where the danger is mostly material makes an attempt to manage the danger with different hedging methods where needed. Generally, a Treasury policy states that a currency risk should be mitigated by using a specific listing of financial instruments. These methods are not only effective, but diversify into several main currencies.