Exchange Rate Risks

 Exchange Rate Risks

There are basically three types of Exchange Rate Risks

1. Transaction Risks
2. Economic Risks
3. Translation foreign currency risk

1.Transaction Risk 

 There are mainly two types of risk which can be classified as transaction risk. one type of risk that you trading and receiving payment in future so the amount of receivable is not certain and other type is short term loan with repayment schedule in future again the amount receivable can not be predicted . The Hedging techniques are used to reduce the risk.

2.Economic Risk 

This risk relates to the long term investment made in another country and the future remittances are not certain. This is basically long term arrangement and therefor it is difficult to minimize the risk by hedging Technique.

3.Translation Risk 

This risk is referred to reporting of foreign transaction in the financial statement.