accounting risk. The risk that the preferred accounting treatment for a transaction is not available. balance sheet hedge. Reducing foreign exchange (FX) exposure by varying the mix of a firm’s foreign currency assets and liabilities.
counterparty. The individual or institution with whom an exchange is effected.
credit risk. The risk that a counterparty will default on its obligations.
derivative. Contractual arrangements creating special rights or obligations that derive their value from another financial instrument or commodity.
economic exposure. The effect of FX rate changes on a firm’s future costs and revenues.
exposure management. Structuring a company’s affairs to minimize the adverse effects of exchange rate changes on earnings.
foreign currency commitments. Firm sales or purchase commitments that are denominated in foreign currency.
inflation differential. Difference in the inflation rate between two or more countries. liquidity risk. The inability to trade a financial instrument in a timely fashion.
market discontinuities. Sudden and significant changes in market value.
market risk. Risk of loss owing to unexpected changes in the prices of foreign exchange, credit, commodities, and equities.
net exposed asset position. An excess of exposed assets over exposed liabilities (also called a
positive exposure).
net exposed liability position. An excess of exposed liabilities over exposed assets (also called a negative exposure).
net investment. A firm’s net exposed asset or liability position.
notional amount. The principal amount specified in a contract to determine settlement.
operational hedge. FX risk protection that focuses on variables that impact a firm’s foreign currency revenues and expenses.
option. The right but not the obligation to buy or sell a financial contract at a specified price on or before a specified date in the future.
regulatory risk. The risk that a public law will constrain the intended use of a financial product.
risk mapping. Examining the temporal relationship of various market risks to financial statement variables that affect a firm’s value and assessing their likelihood of occurrence.
structural hedges. Selecting or relocating operations to reduce a firm’s overall FX exposure.
tax risk. The risk that a desired tax treatment is not available.
translation exposure. Measuring the parent currency effects of FX changes on foreign currency assets, liabilities, revenues, and expenses.
transaction exposure. Exchange gains and losses that arise from the settlement (conversion) of foreign currency transactions.
value at risk. Risk of loss on an entity’s trading portfolio caused by changes in market conditions.
value driver. Balance sheet and income statement accounts that impact firm value.
Elmer Tamayo is the author of myaccountinginfo.net who took-up his degree of "BS in Accountancy" major in accounting. A Web designer and blogger, His passion is Reading books, searching new tech update on the world wide web. Read More...
