Currency risk, also known as exchange rate risk or foreign exchange risk, refers to the risk of financial loss that an investor or business may face due to the fluctuation of exchange rates between different currencies. This risk is particularly relevant for businesses and investors that operate across international borders and engage in foreign trade, as they must convert currencies in order to conduct their transactions. Currency risk can affect a company’s profits, cash flows, and balance sheet, and can be mitigated through various hedging strategies such as forward contracts, options, and swaps.