“Foreign exchange risk (FX risk)”
FX risk is the danger of losing investment value due to changes in exchange rates. It is also known as currency risk or exchange rate risk.
FX risk for international businesses
Frequently, companies purchase products and services from a foreign supplier, for which payment is due in the supplier’s currency at a later date. Should the interim rate move against them in the interim, on the payment date, the company will need to pay a greater amount in its own currency to the supplier.
Exporters and importers are particularly exposed to exchange rate volatility and therefore they frequently implement comprehensive FX risk management strategies. This can range from the use of forward contracts, options and other financial products to more sophisticated Dynamic Hedging tools that allow them to fully automate their FX management.