Economics Risk And Return Questions
Exchange rate risk refers to the potential loss or gain that an investor or business may experience due to fluctuations in the value of one currency relative to another. It arises when there is uncertainty about the future exchange rate between two currencies, which can impact the profitability and value of international investments, imports, exports, and foreign currency-denominated transactions. Exchange rate risk can be caused by various factors such as economic indicators, political events, interest rate differentials, and market speculation.