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Currency Exchange Risk |
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Currency Exchange RiskUncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency.Currency Exchange Risk Similar MatchesCanonical model of currency crisesCanonical model of currency crisesThis term has been used to refer to the model that Krugman (1979) presented of a currency crisis that results when domestic policy is pursued in a manner inconsistent with a pegged exchange rate. Foreign currency mortgageForeign currency mortgageIt is possible to get a mortgage for your home in the UK in a mortgage denominated in a foreign currency. It sometimes gives you the opportunity to borrow money at a lower rate of interest than is possible in the UK. You do this by choosing a currency whose country has lower interest rates than we have here. Lower interest rates should mean lower repayments of both capital and interest or a shorter mortgage term. The mortgage does not have to be in any single currency. There are lenders who will allow you to spread your mortgage across a range of different currencies. This could be seen as spreading the risk Net currency exposureNet currency exposureExposure to foreign exchange risk> after netting all intracompany cash flows. Currency swapCurrency swapAn arrangement in which two parties exchange a series of cashflows in one currency for a series of cashflows in another currency, at agreed intervals over an agreed period.Companies would do this where they have existing borrowings in a currency which they want to convert into a borrowing in another currency. If its borrowing is at a fixed rate, and it is exchanging for another fixed rate borrowing, the swap is a 'fixed rate currency swap'.Unlike an interest rate swap, a currency swap usually does involve an exchange of the principal borrowed amount as well as the interest payments. Currency swingsCurrency swingsThese affect foreign currency mortgages. In pound sterling terms, the value of the capital outstanding on your mortgage can rise or fall dramatically if there is movement in the value of either the currency of the loan or UK pounds sterling. If the value of the pound increases, you should benefit from lower repayments, as the value of the foreign currency you have borrowed decreases. Less sterling is required to buy the same amount of foreign currency necessary to meet the repayments and vice versa. Further SuggestionsCurrency put optionComptroller of the Currency European Currency Unit (ECU) Currency speculation Currency reallignment Currency future Optimal currency area Currency depreciation Reserve currency Currency crisis Currency basket Currency hedge Hard currency European Currency Unit Foreign currency option Currency factor Currency no longer issued Currency union Foreign currency translation Multicurrency loans Currency bloc Eurocurrency Reporting currency Over-valued currency Currency swap |
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