Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes.

Question

Quizplus · Accepted Answer

Exchange rate risk is a real risk faced by multinational companies operating in different countries. Fluctuations in exchange rates can lead to significant differences in the actual value of cash flows from foreign projects, which can potentially hurt the profitability and viability of those projects. As such, companies must actively manage exchange rate risk through a variety of tools like hedging, diversification, or adjusting their pricing strategies.

Exchange Rate Risk Is the Risk That the Cash Flows