Currency risk

The relevant exposure depends on the organisation’s activities, currencies and timing. Transaction risk concerns contracted foreign-currency receipts or payments; translation risk concerns conversion of reported amounts; economic currency risk concerns longer-term competitiveness and cash consequences. The categories can overlap but are not interchangeable. A hedge should address an identified exposure with suitable amount, horizon and contract terms. Changing one risk may create another, and merely observing a volatile rate does not establish the organisation’s net exposure.