definitions Exchange risk

Exchange risk

The risk that losses may result from the changes in the relative values of different currencies. Uncertainty about the value of an asset, liability, or commitment due to uncertainty about the future value of an exchange rate. Unless they cover themselves in the forward market, traders with commitments to pay or receive foreign currency in the future bear exchange risk. So do holders of assets and liabilities denominated in foreign currency. The variability of a firm’s (or asset’s) value that is due to uncertain exchange rate changes.