Both fluctuating exchange rates and deferred payment terms are necessary for foreign exchange risk to exist.

Question

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Fluctuating exchange rates create uncertainty in the value of payments made or received in a foreign currency, and deferred payment terms delay the actual transfer of funds, allowing the exchange rate to change before the transaction is completed, increasing the risk of loss due to currency fluctuations. Therefore, both factors are necessary for foreign exchange risk to exist.

Both Fluctuating Exchange Rates and Deferred Payment Terms Are Necessary