Fore|gn Exchange R|sk

8aLe aL whlch one currency may be converLed lnLo anoLher also called raLe of exchange or
exchange raLe or currency exchange raLe
1he fore|gn exchange market (forex Ik or currency market) ls a global worldwlde
decenLrallzed flnanclal markeL for Lradlng currencles llnanclal cenLers around Lhe world
funcLlon as anchors of Lradlng beLween a wlde range of dlfferenL Lypes of buyers and sellers
around Lhe clock wlLh Lhe excepLlon of weekends 1he forelgn exchange markeL deLermlnes
Lhe relaLlve values of dlfferenL currencles

Liquidity Risk
n flnance llquldlLy rlsk ls Lhe rlsk LhaL a glven securlLy or asseL cannoL be Lraded qulckly
enough ln Lhe markeL Lo prevenL a loss (or make Lhe requlred proflL)

LlquldlLy ls a measure of how qulckly an lnvesLmenL can be sold for cash aL a falr markeL
prlce f a fund canL sell an lnvesLmenL qulckly lL may lose money or make a lower proflL
especlally lf lL has Lo meeL a large number of redempLlon requesLs

LlquldlLy rlsk ls Lhe rlsk of recelvlng less Lhan Lhe poLenLlal markeL value (falr value) of an
lnvesLmenL lf lL musL be sold for cash qulckly An example would be a securlLy holder Lrylng Lo
exchange securlLles for cash ln a secondary markeL


red|t k|sk
CredlL rlsk ls an lnvesLors rlsk of loss arlslng from a borrower who does noL make
paymenLs as promlsed Such an evenL ls called a defaulL AnoLher Lerm for credlL rlsk ls defaulL
rlsk
1he rlsk LhaL a counLer parLy Lo a LransacLlon wlll fall Lo perform accordlng Lo Lhe Lerms
and condlLlons of Lhe conLracL Lhus causlng Lhe holder of Lhe clalm Lo suffer a loss
CredlL 8lsk ls assesslng Lhe flnanclal and buslness rlsk lnvolved ln lendlng Lo parLlcular
counLerparLles 8elevanL facLors would lnclude buL are noL llmlLed Lo a companys compeLlLlve
poslLlon wlLhln lLs lndusLry sLraLeglc dlrecLlon managemenL quallLy and flnanclal proflle