What is the foreign currency risk description?
Foreign currency risk is the potential loss from a business, investment or personal purchase transaction where a purchase is made in one currency for an item sold in another currency.ImpactAccording to Bloomberg Businessweek, more than half of U.S. companies reported in 2010 that currency fluctuation impacted their net income. Since companies and individuals buy and sell items worldwide, currency risk can affect any transaction.The Actual RiskLet’s say that you travel to Mexico to purchase a saddle. On the first day you shop, the Mexican peso is valued at 12 pesos per $1. The saddle would cost $200, or 2400 pesos. When you go back to purchase the saddle, the price is now $250. From the time you first looked at the saddle until you decided to purchase it, the Mexican peso rose to a value of 9.6 pesos for $1. It now takes more U.S. dollars to purchase the saddle. The fluctuation would have caused a loss for you.Assessing Currency RiskSeveral factors affect currency risk: the nature of th
