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Financial Terms | |
Currency risk sharing |
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Definition of Currency risk sharingCurrency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with
Related Terms:Asian currency units (ACUs)Dollar deposits held in Singapore or other Asian centers. Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Blocked currencyA currency that is not freely convertible to other currencies due to exchange controls. Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic ![]() Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk Completion riskThe risk that a project will not be brought into operation successfully. Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that the ![]() Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Cross-border riskRefers to the volatility of returns on international investments caused by events associated CurrencyMoney. Currency arbitrageTaking advantage of divergences in exchange rates in different money markets by Currency basketThe value of a portfolio of specific amounts of individual currencies, used as the basis for Currency futureA financial future contract for the delivery of a specified foreign currency. Currency optionAn option to buy or sell a foreign currency. Currency riskRelated: Exchange rate risk Currency selectionAsset allocation in which the investor chooses among investments denominated in Currency swapAn agreement to swap a series of specified payment obligations denominated in one currency Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an Devaluation A decrease in the spot price of the currency
Diversifiable riskRelated: unsystematic risk. Dual-currency issuesEurobonds that pay coupon interest in one currency but pay the principal in a different Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Eurocurrency depositA short-term fixed rate time deposit denominated in a currency other than the local Eurocurrency marketThe money market for borrowing and lending currencies that are held in the form of European Currency Unit (ECU)An index of foreign exchange consisting of about 10 European currencies, Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be Financial riskThe risk that the cash flow of an issuer will not be adequate to meet its financial obligations. financial riskrisk to shareholders resulting from the use of debt. Firm-specific riskSee:diversifiable risk or unsystematic risk. Flat price riskTaking a position either long or short that does not involve spreading. Force majeure riskThe risk that there will be an interruption of operations for a prolonged period after a Foreign currencyForeign money. Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign Foreign currency translationThe process of restating foreign currency accounts of subsidiaries into the Foreign exchange riskThe risk that a long or short position in a foreign currency might have to be closed out Funding riskRelated: interest rate risk Geographic riskrisk that arises when an issuer has policies concentrated within certain geographic areas, Hard currencyA freely convertible currency that is not expected to depreciate in value in the foreseeable future. Herstatt riskThe risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk. High-Risk Small BusinessFirm viewed as being particularly subject to risk from an investors perspective. Idiosyncratic RiskUnsystematic risk or risk that is uncorrelated to the overall market risk. In other words, Inflation riskAlso called purchasing-power risk, the risk that changes in the real return the investor will Insolvency riskThe risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk. Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest Rate RiskPossibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing. judgmental method (of risk adjustment)an informal method of adjusting for risk that allows the decision maker Liquidity riskThe risk that arises from the difficulty of selling an asset. It can be thought of as the difference Market price of riskA measure of the extra return, or risk premium, that investors demand to bear risk. The Market riskrisk that cannot be diversified away. Related: systematic risk Market RiskThe amount of total risk that cannot be eliminated by portfolio market riskEconomywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk. Market RiskThe part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient. market risk premiumrisk premium of market portfolio. Difference between market return and return on risk-free Treasury bills. Mortgage-pipeline riskThe risk associated with taking applications from prospective mortgage borrowers Multicurrency clauseSuch a clause on a Euro loan permits the borrower to switch from one currency to Multicurrency loansGive the borrower the possibility of drawing a loan in different currencies. Nondiversifiable riskrisk that cannot be eliminated by diversification. Nonsystematic riskNonmarket or firm-specific risk factors that can be eliminated by diversification. Also Operating riskThe inherent or fundamental risk of a firm, without regard to financial risk. The risk that is operating risk (business risk)risk in firm’s operating income. Overnight delivery riskA risk brought about because differences in time zones between settlement centers Political riskPossibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of Price riskThe risk that the value of a security (or a portfolio) will decline in the future. Or, a type of Product riskA type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or profit sharingan incentive payment to employees that is Profit Sharing PlanA retirement plan generally funded by a percentage of company Purchasing-power riskRelated: inflation risk Rate riskIn banking, the risk that profits may decline or losses occur because a rise in interest rates forces up Regulatory pricing riskrisk that arises when regulators restrict the premium rates that insurance companies Reinvestment riskThe risk that proceeds received in the future will have to be reinvested at a lower potential Reporting currencyThe currency in which the parent firm prepares its own financial statements; that is, U.S. Reserve currencyA foreign currency held by a central bank or monetary authority for the purposes of Reserve CurrencyA currency, frequently the U.S. dollar, that is used by other countries to denominate the assets they hold as international reserves. Residual riskRelated: unsystematic risk Reverse price riskA type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an RiskTypically defined as the standard deviation of the return on total investment. Degree of uncertainty of riskuncertainty; it reflects the possibility of differences between RiskThe degree of uncertainty associated with the return on an asset. RiskA state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them. riskrisk measures the possibility that your investment may lose or gain value as compared to the expected rate of return. risk is different from uncertainty, which is not measurable. RiskCalculated chance of loss. Risk-adjustedreturn Return earned on an asset normalized for the amount of risk associated with that asset. risk-adjusted discount rate methoda formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash flows to compensate for increased risk Risk-adjusted profitabilityA probability used to determine a "sure" expected value (sometimes called a Risk arbitrageSpeculation on perceived mispriced securities, usually in connection with merger and Risk averseA risk-averse investor is one who, when faced with two investments with the same expected Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |