Foreign exchange risk
FX / FX risk · Currency risk
Foreign exchange risk is the effect of currency movements on the value of costs, payments, receipts or assets denominated in a currency other than the organisation's reporting currency.
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Simply put
What it means in ordinary work
It is the risk that exchange rates change the amount a purchase or contract really costs. The effect can be larger than the negotiated price difference between bidders.
Why it matters
Cross-border contracts can create budget and cash-flow uncertainty. Identifying exposure helps teams choose pricing, hedging and contract mechanisms.
A hypothetical in practice
A hypothetical buyer signs a contract in a foreign currency with payment in six months. It models a range of exchange-rate outcomes and decides whether to fix the price in its own currency or use a hedging policy.
Common pitfalls
Hedging can reduce risk but has cost and accounting consequences. Follow the organisation's treasury policy.
Comparing bids in different currencies without a consistent rate and date can distort the award.
Scope and limits
General finance explanation only. Hedging, accounting and treasury treatment depend on the organisation and applicable standards.
Regional lens
How this lands where you work
The global explanation is canonical. Regional notes are additive, separately sourced and shown with their own review state. They never replace the global meaning.
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As-of date for date-sensitive regional content: 5 November 2026. Read the review policy.