Question : ________ risk refers to the potential for losses due to changes in exchange rates.
Option 1: Credit
Option 2: Market
Option 3: Operational
Option 4: Foreign exchange
Correct Answer: Foreign exchange
Solution : The correct answer is (d) Foreign exchange risk.
Foreign exchange risk refers to the potential for losses that can occur due to fluctuations or changes in exchange rates. This risk is relevant to individuals, businesses, and financial institutions that engage in international transactions or hold assets or liabilities denominated in foreign currencies. Changes in exchange rates can impact the value of investments, the cost of imports and exports, and the profitability of international business operations. Managing foreign exchange risk often involves hedging strategies, such as using derivatives or forward contracts, to mitigate potential losses caused by currency fluctuations.
