Foreign exchange risk ,also known as exchange rate risk, refers to the change in the local currency value of assets, liabilities, profits or expected future cash flows denominated in foreign currencies due to fluctuations in exchange rates to foreign exchange transaction entities. Uncertainty. So, what are the two categories of foreign exchange risk?
What are the two categories of foreign exchange risk?
Corporate foreign exchange risk
Transaction Risk Accounting Risk Economic Risk (1) It has subjective consciousness. (2) It does not include forecast exchange rate movements. (3) Its risk impact is greater than transaction risk and translation risk.
Risks of banks operating foreign exchange business
- Foreign exchange trading risks (1) Foreign exchange banking and foreign exchange trading business (2) Foreign exchange positions (3) Types of foreign exchange trading by banks: buying and selling on behalf of customers, self-operated trading;
- Foreign exchange credit risk: the risk brought to the bank due to the default of the parties in foreign exchange transactions.
- Settlement risk
National foreign exchange reserve risk
All of a country’s foreign exchange reserves are at risk from a devaluation of the reserve currency . It mainly includes the national foreign exchange inventory risk and the national foreign exchange reserve investment risk. Since the international community implemented the floating exchange rate system in 1973, the foreign exchange reserves of all countries in the world have faced the same operating environment, that is, the reserve currency is diversified, and the reserve currency is mainly the US dollar , and the exchange rate of the reserve currency including the US dollar fluctuates greatly. In this way, the foreign exchange reserves of various countries face great risks. Since foreign exchange reserves are the most important component of international solvency and an important symbol of a country’s national strength, once the risks faced by foreign exchange reserves become a reality, the consequences will be very serious. From the perspective of its origin, foreign exchange risk can be roughly divided into two categories: commercial exchange rate risk and financial exchange rate risk: Commercial exchange rate risk mainly refers to the possibility of people suffering losses due to exchange rate changes in international trade Sexuality is the most common and important risk in foreign exchange risk. Financial exchange rate risk: Financial exchange rate risk includes debt risk and reserve risk.