Exchange Rate Risk

470 Words2 Pages
Exchange Rate Risk If a company or individual investor had a $90,000 (USD) portfolio, it would only be worth $69,651 in Euro because the USD is 1.00 against the Euro of 0.7739 (Historical Exchange Rates). US Dollar vs Euro 2012 Euro $90,000 value 2011 Euro $90,000 value 2010 Euro $90,000 value 14Sep 0.7739 69,651 13Sep 0.7763 69,867 12Sep 0.7811 70,299 11Sep 0.7821 70,389 10Sep 0.7802 70,218 9-Sep 0.7801 70,209 8-Sep 0.7874 70,866 7-Sep 0.7927 71,343 31Dec 0.7722 69,498 0.7545 67,905 30Dec 0.7738 69,642 0.7609 68,481 29Dec 0.7671 69,039 0.7578 68,202 28Dec 0.7652 68,868 0.7612 68,508 27Dec 0.7654 68,886 0.7618 68,562 26Dec 0.7664 68,976 0.7618 68,562 25Dec 0.7664 68,976 0.762 68,580 There has been significant changes in the international economy and politics that has led to uncertainty regarding the direction of foreign exchange rates that lead to volatility and the need to hedge foreign exchange rate risk and interest rate changes (Nobile, 2005). If a price is quoted ahead of time for a contract, the price may not be appropriate at the time of the actual agreement or the performance of the contract because of fluctuations in the foreign currency. The interest rate will have a differential between the two country currencies. A business or individual investor that buys foreign currency to purchase
Open Document