The risk of loss from changes in exchange rates on assets, liabilities or earnings denominated in other currencies. It can be hedged with forwards and swaps.
Where you will meet it
Exchange rate risk comes up in 6 learning outcome notes across the FRM syllabus.
A few of them:
Fund Management FRM Part I · Financial markets and products
“Emerging market funds are mostly long because shorting is hard, facing sovereign and currency risk.”
How Do Firms Manage Financial Risk? FRM Part I · Foundations of risk management
“For foreign currency risk, use forwards priced by covered interest parity or a money market hedge.”
The US Dollar Shortage in Global Banking and the International Policy Response FRM Part II · Liquidity and treasury risk measurement and management
“The Fed bore no exchange rate risk because the reversal rate was fixed.”
Foreign Exchange Markets FRM Part I · Financial markets and products
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