Foreign exchange risk (FX risk) is the risk of loss due to movements in foreign exchange rates. The loss may impact profits and/or the balance sheet. FX risk is generally considered to be either FX transaction risk (associated with import and export transactions) or FX translation risk (associated with the translation of assets and liabilities denominated in a foreign currency).
No one can reliably predict exchange rate movements (if they could – they’d be working for themselves and not sharing their forecasts with anyone). Exchange rates can be volatile. Organisations manage the potential volatility in their P&L and/or balance sheets by hedging their FX exposures using forward exchange contracts, foreign exchange options and borrowing and lending in foreign currencies.
We assist clients through: