Foreign Exchange Risk

Foreign exchange risk is a financial risk that exists when a financial contract is denominated in a currency other than that of the base currency of the corporation. Foreign exchange risk as well exists when the foreign contributory of a firm maintains financial statements in a currency other than the coverage currency of the consolidated entity. Investors and businesses exporting or importing merchandise and services or making foreign investments have an exchange rate risk which can have harsh monetary consequences; but steps can be taken to control the risk.