| || InvestHub.com's |
Finance Dictionary and Glossary of Investment Terms
Related: Exchange rate risk
The risk that a business' operations or an investment's value will be affected by changes in exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments. also called exchange rate risk.
Currency risk is the risk posed to an investment by fluctuating worldwide exchange rates. If you invest in foreign stocks, or in a U.S.-based mutual fund company that invests in overseas companies, you face a certain level of currency risk. Perhaps the greatest currency risk to a mutual fund''s portfolio is that its profits will be partially reduced -- or even wiped out -- when exchanged into U.S. dollars. To reduce that risk, fund managers use a variety of techniques known as ""currency hedging.""