Foreign exchange (Forex) risk
Foreign exchange (Forex) risk, also known as currency risk, refers to the potential financial loss that can occur due to fluctuations in exchange rates. Businesses and investors face forex risk when they hold assets or conduct transactions in foreign currencies. Effective risk management strategies (FX hedging) are essential to mitigate the impact of exchange rate volatility on financial performance. Forex hedging strategies generally consist of contracts, such as forward, future, swap, or option contracts.