Any investment is inseparable from risk, so what are the types of foreign exchange rate risk? Today, I'll give you the answer to this question. If you are interested, please come to understand and study together~
1、 Transaction risk:
Transaction risk the possibility of economic entities suffering losses due to the change of foreign exchange rate in the transaction of using foreign currency for valuation and payment.
Transaction risk mainly occurs in the following situations:
(1) Risks in the import and export of goods and services. This is the risk that we need to face when company a sells M products to the United States in the initial case.
(2) The risk of capital input and output. When making overseas investment, we should not only face the rate of return on investment, but also consider the exchange rate risk. Suppose that a company in the United States, company C, has invested in a Chinese enterprise, and the rate of return is 10%. However, if it is in this year. The exchange rate of usdcny has increased by 8%, and the domestic rate of return in the United States is 4%. So for company C, it is necessary to consider investing in China.
(3) The risk of foreign exchange positions held by foreign exchange banks. The risk of foreign exchange bank positions is also the reason why many foreign exchange banks quote prices to control foreign exchange positions.
2、 Translation risk (accounting risk)
Translation risk refers to the possibility of book loss caused by exchange rate changes when the functional currency is converted into bookkeeping currency in the accounting treatment of balance sheet by economic entities.
This loss is on the accounting book. When enterprises prepare financial statements, they usually use domestic currency as the bookkeeping currency, and the currency of different countries will be involved in the circulation transaction process, which leads to the inconsistency between the book value and the actual value.
3、 Operational risk
It refers to a kind of potential loss that unexpected exchange rate change will cause the decrease of enterprise's income or cash flow in a certain period in the future by influencing the production and sales quantity, price and cost of the enterprise. In the initial case, enterprise a purchased raw materials from company B in New Zealand, which was faced with operational risks brought about by exchange rate changes.
The above is about the foreign exchange rate risk type introduction, I believe you have some understanding.
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