Hedging Foreign Currency Risk

Hedging Foreign Currency Risk - Hedging Foreign Currency...

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Hedging Foreign Currency Risk Foreign-currency risk or foreign exchange risk, is the risk that a change in currency exchange rates adversely impacts business results. Future payments or distributions payable in a foreign currency carry the risk that the foreign currency will depreciate in value before the foreign currency payment is received and is exchanged into U.S. dollars. While there is a chance of profit from the currency exchange in the event the price of the foreign currency increases, most investors and lenders would give up the possibility of currency exchange profit if they could avoid the risk of currency exchange loss. The foreign exchange market comprises the spot market and the forward or future market. The spot market is for foreign exchange delivered in two days or less. Transactions in the spot market quote rates of exchange prevalent at the time of the transactions. The forward market is for foreign exchange to be delivered in three days or more. In quoting the forward rate of currency, a bank will
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Hedging Foreign Currency Risk - Hedging Foreign Currency...

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