Question : What is the term used to describe the risk that changes in exchange rates will impact the profitability of international trade transactions?
Option 1: Currency risk
Option 2: Counterparty risk
Option 3: Market risk
Option 4: Operational risk
Correct Answer:
Currency risk
Solution : The correct answer is a) Currency risk
Currency risk, also known as exchange rate risk or foreign exchange risk, refers to the potential financial loss or uncertainty faced by individuals, companies, or investors due to fluctuations in exchange rates between two currencies. It arises when transactions or investments involve multiple currencies and the exchange rates between those currencies change over time.
Currency risk can affect various aspects of international business and finance. For example, it can impact importers and exporters who engage in cross-border trade, as changes in exchange rates can affect the prices of imported goods and the competitiveness of exported goods. Currency risk can also affect multinational corporations with operations in multiple countries, as it can impact the value of their foreign earnings when converted back into the home currency.
