Currency Risk

Friday, March 19, 2010

The change in the price of one currency against the other currency is called currency risk.

Some time a risk arises in the form of change in value of one currency against another currency i.e. the value of one currency falls against the other one.

For example, if you are a British investor and you have stocks in Australia; the return that you will realize is affected by both the change in the price of the stocks and the change in the value of the Australian currency against the British pound. So, if you realize a 15% return in your Australian stocks but it depreciates 15% against the British pound, this will cause loss and you have to no gain at all.
Investors or companies who have assets or business with other national borders, they have many chances to face currency risk if their positions are not sound.