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Volatility risk
From Wikipedia, the free encyclopedia.

Volatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a
probability measure of the threat that an exchange rate movement poses to an investor's portfolio in a foreign currency.
The volatility of the exchange rate is measured as standard deviation over a dataset of exchange rate movements.

A far more sophisticated extension of this model is the Value at Risk method, which helps to determine the actual risk
exposure to a portfolio of several currencies.

Consequences of currency volatility

Reduces volume of international trade
Reduces long term capital flows
Increases speculation
Increases resources absorbed in risk management
Economic policy making becomes difficult

See also
Exchange rate
Standard deviation
Risk management
Value at Risk method
Market risk

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Categories: Foreign exchange market | Risk | Economics and finance stubs

This page was last modified 03:31, 13 August 2005.

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