What is currency risk?

When funds are exchanged from one currency to another, gains or losses arise depending on the exchange rate. Currency risk is investors potential gains or losses from the exchange of one currency for other currencies, overseas investment or international trade.

Where have you heard about currency risk?

If you have exchanged currency as a result of travel, you have assumed currency risk. Between 2007 and 2017, the value of the pound fell relative to the dollar. As a result, £ 100 will be spent on fewer dollars in 2017 than in 2007.

The information you need to know about currency risk...

Currency exchange necessarily involves currency risk. Currencies are always moving, so there are opportunities and risks for investors and companies doing business overseas or buying supplies from overseas.

As an investor, you can invest directly in currencies. If you invest in stocks, you need to understand the currency fluctuations and currency risks of the companies in which you invest. For example, 1 pound was worth 10 yuan in 2015, but now it is only worth 8.5 yuan. Any British company that buys Chinese goods will see the cost of Chinese goods rise. These companies can increase their prices to cover the additional costs or reduce their profit margins.

Currency risk can be managed using currency hedging strategies.