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The Risk That Are Involved in Foreign Exchange Market

In: Business and Management

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The Risk that are Involved in Foreign Exchange Market
FIN-571
January 14, 2017
Kevin Suber

The Risk that are Involved in Foreign Exchange Market

In a foreign market trade investors can purchase stock in the international market exchange. Investors buy into the foreign exchange market, because it makes the investor make valuable profits quicker in a good economy. For most investors this would seem to be too good of a deal to pass up however, there can be some risk involved investing in a foreign market. In this paper I will be discussing the types of risk involved in the market. Here are a few type of risk an investor could potential be hit with in a foreign exchange market. The foreign exchange risk include, exchange rate risk, interest rate risk, and country and liquidity risk just to name a few of the major risk. For investors it is important to understand the risks in the foreign market trade. The big risk like exchange rate risk can be damaging to an investor portfolio because it is based on the market perception. The exchange rate risk also factors a largely unregulated Forex off-exchange trading. Another risk involved in the foreign market is the interest rate risk. The interest rate risk by fluctuating in the forward speeds and forward mismatch of in maturity gaps in the transaction of the foreign exchange. To include with the following risk would be the country and liquidity risk in the foreign market. The investor does risk the potential of a country or liquidity of stocks overseas in a foreign exchange market. Even though there is supposed to be some protection to the investor, because it is overseas the time change could offset the protection to an investor in other countries, and could lose his shares in a volatile market without notice.

For risky investors who like to make a quick profit would gamble to invest in a foreign exchange market as…...

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