Volatility risk

Volatility risk

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

ee also

*Exchange rate
*Standard deviation
*Risk management
*Value at Risk method
*Market risk


Wikimedia Foundation. 2010.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • Volatility risk — The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset. The New York Times Financial Glossary …   Financial and business terms

  • volatility risk — The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset. Bloomberg Financial Dictionary …   Financial and business terms

  • Volatility risk/exposure —   A treasury term for exposure to a change in the volatility of the exchange rate, irrespective of the direction of the movement …   International financial encyclopaedia

  • Volatility (finance) — Volatility most frequently refers to the standard deviation of the continuously compounded returns of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over that time period. Volatility… …   Wikipedia

  • risk — /rɪsk/ noun 1. possible harm or a chance of danger ♦ to run a risk to be likely to suffer harm ♦ to take a risk to do something which may make you lose money or suffer harm 2. ♦ at owner’s risk a situation where goods shipped or stored are… …   Marketing dictionary in english

  • risk — /rɪsk/ noun 1. possible harm or a chance of danger ♦ to run a risk to be likely to suffer harm ♦ to take a risk to do something which may make you lose money or suffer harm 2. ♦ at owner’s risk a situation where goods shipped or stored are… …   Dictionary of banking and finance

  • Volatility arbitrage — (or vol arb) is a type of statistical arbitrage that is implemented by trading a delta neutral portfolio of an option and its underlier. The objective is to take advantage of differences between the implied volatility of the option, and a… …   Wikipedia

  • Risk arbitrage — Risk arbitrage, or merger arbitrage, is an investment or trading strategy often associated with hedge funds. Two principal types of merger are possible: a cash merger, and a stock merger. In a cash merger, an acquirer proposes to purchase the… …   Wikipedia

  • risk measurement unit — ( RMU) A defined quantity or unit of risk. Quantities of risk may be defined for the purposes of setting risk exposure limits or for the purposes of allocating capital to measure risk adjusted returns on capital. RMUs are often defined in terms… …   Financial and business terms

  • Risk — takers redirects here. For the Canadian television program, see Risk Takers. For other uses, see Risk (disambiguation). Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”