Currency risk, also known as exchange-rate risk or foreign exchange risk, arises from the fluctuation in the exchange rate between two currencies, impacting the value of investments or transactions made in foreign currencies.
Economic exposure, also known as operating exposure, encompasses the potential impact of changes in macroeconomic variables and exchange rates on the value of a business engaged in international trade.
A parallel hedge involves mitigating exposure to fluctuations in one foreign currency by using a second currency expected to move similarly.
Transaction exposure refers to the risk that a firm's exposure to exchange-rate fluctuations will impact the value of anticipated cash flows from a transaction when the contractual obligation is settled.
Translation risk, also known as currency risk, is the monetary value risk that occurs in international trade when two or more currencies are used in a transaction. The longer the period before the transaction ends, the greater the translation risk.
