Exchange rate risk, also known as currency risk, is the potential for losses arising from fluctuations in foreign exchange rates. It affects any trader or business with exposure to foreign currencies and can be hedged using forwards, options, or other derivatives.
Example
“A US-based company that exports to Europe faced exchange rate risk when EUR/USD dropped from 1.12 to 1.05, reducing the dollar value of its euro-denominated receivables by over 6%.”