Firms engaged in international transactions incur because of fluctuations in the exchange rates among currencies.

Question

Quizplus · Accepted Answer

Exchange rate risk refers to the potential financial losses that firms may suffer due to the fluctuation in exchange rates between currencies. This type of risk is a result of the unpredictable nature of the foreign exchange market, and it can significantly affect the profitability of international transactions. Option A (credit risk) refers to the risk that customers or counterparties may default on their obligations. Option B (political risk) refers to the risk that political events or changes in government policies may negatively impact a firm's operations. Option C (market risk) refers to the risk of financial losses resulting from market fluctuations, such as changes in interest rates, stock prices, or commodity prices. While all these risks may be relevant for firms engaged in international transactions, exchange rate risk is specifically related to fluctuations in currency exchange rates.

Firms Engaged in International Transactions Incur Because of Fluctuations in the Exchange