Foreign Exchange Risk and Exchange Rates
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In 250 to 350 words, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.
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This solution discusses foreign exchange risk and gives an example that analyzes how foreign exchange rates could cause a loss to the firm.
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Briefly, What Does Foreign-Exchange Risk Mean?
According to Investopedia, it is:
1. The risk of an investment's value changing due to changes in currency exchange rates.
2. The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-rate risk".
Investopedia explains further explains Foreign-Exchange Risk this way:
This risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or ...
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