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Tag Archives: exchange

Settlement risk

Thursday, November 26, 2009

This is the risk that the settlement of a transaction with a counterparty fails. A bank that exchanges US$ with another bank for yen has a potential settlement risk due to the time difference between the USA and Japan; it will deliver the US$ before it receives the equivalent in yen.

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Foreign currency risk

Sunday, November 15, 2009

A foreign bank that borrows US$ and lends it out in its local currency is exposed to exchange risk. The main risk here is that the US$ appreciates against the local currency leaving it with a liability that in local currency terms it is greater than the value of its matching asset.

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