What Is the Economic Currency Risk and What is He?

Economic risk is defined as the probability of adverse effects of exchange rate changes on the economic situation of the company, for example, reducing the likelihood of turnover or changes in prices of factors of production and finished products as compared to other prices in the domestic market. The risk may be due to changes in the severity of competition both on the part of producers of similar goods, as well as from manufacturers of other products, as well as changes in consumers' commitment to a particular brand. The impact may also have other sources, such as the government's response to changes in exchange rates or wage restraint as a result of inflation caused by currency depreciation.

In the least degree of economic risk are companies that incur costs in local currency only, do not have alternative sources of production factors, which could affect the exchange rate. These companies sell their products only within the country and do not meet the competition from goods whose prices can become more prosperous as a result of the favorable exchange rate. However, even these companies are not fully protected because of exchange rate changes may have consequences which can not escape any one firm.

Fluctuations in exchange rates may affect the degree of competition from other manufacturers, had an effect on the structure of their cost or their selling prices denominated in local currency. The company, which sells exclusively on the domestic market, with costs paid in national currency only to suffer from the appreciation of domestic currency, as the competitive imported goods will be cheaper, as well as goods of domestic producers, competitors, whose costs are paid partly in foreign currency.

Change the value of the currency of the country may have more importance for the company to list its subsidiary in that country in order to provide a cheap source of supply or on its domestic market or the markets of other countries' consumers.
Home page.