Asked by Reylan Davis on May 14, 2024
Verified
Both fluctuating exchange rates and deferred payment terms are necessary for foreign exchange risk to exist.
Foreign Exchange Risk
The risk of loss due to changes in currency exchange rates affecting the value of investments or financial transactions.
Deferred Payment
A payment postponed to a future date or a series of payments made over time after the purchase or agreement.
- Understand the diverse methods a company can employ to handle the risk involved in foreign exchange transactions.
Verified Answer
MB
Mohamed Badr El NemrMay 17, 2024
Final Answer :
True
Explanation :
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.
Learning Objectives
- Understand the diverse methods a company can employ to handle the risk involved in foreign exchange transactions.
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