Types of currency risk
In this lesson, you'll learn the three main types of currency risk that affect international businesses: economic risk (long-term impact on cash flows), translation risk (accounting losses from converting foreign assets and liabilities), and transaction risk (short-term settlement risk when exchange rates move between
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In this lesson
- 0:00 Types of currency risk explained
- 0:32 Three categories of currency risk
- 1:23 Identifying translation risk in practice
- 2:01 What causes exchange rates to fluctuate
- 2:20 Key theories driving exchange rate movements
About this lesson
agreement and payment). Understanding these distinctions is essential for FM and AFM papers, where you'll need to identify which risk a company faces and how to manage it effectively. The video also introduces the key drivers of exchange rate fluctuations—balance of payments, interest rate parity, purchasing power parity, and the four-way equivalence model—which form the foundation for more advanced hedging and forecasting techniques you'll encounter later in your studies.
Duration: 3m
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