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Glossary

Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.

margin risk

Margin risk, in the context of FX risk management, refers to the impact of unexpected currency fluctuations on operating profit margins. A Europe-based exporter to the United States could see operating profit margins decrease in the event of a sharp EUR appreciation, as it would be forced to slash USD selling prices in order to maintain market share. A hard definition of margin risk management would be a stated policy of not having operating margin decrease by more than 5%, for example, due to the changes in exchange rates. Currency management, including pricing in foreign currencies and effective hedging programs, can go a long way in protecting a firm from FX-induced margin risk.