Risk can be divided into transaction risk, translation risk and economic risk.
1. Transaction Risk Transaction risk The possibility that an economic entity may suffer losses due to changes in exchange rates in transactions in which foreign currencies are used for valuation, receipt and payment.
Transaction risks mainly occur in the following situations :(1) import and export risks of goods and services.
(2) Risks of capital input and output.
(3) risks held by banks.
2. Translation risk Translation risk, also known as accounting risk, refers to the possibility of book loss due to exchange rate changes in the accounting treatment of balance sheets by economic entities when converting functions into functional currencies.
3. Economic risk Economic risk, also known as business risk, refers to a potential loss caused by unexpected exchange rate changes that affect the production and sales quantity, price and cost of an enterprise, resulting in a reduction in earnings or cash flow in a certain period in the future.
