Question

Exchange rate volatility affects not just multinationals and large corporations, but small and medium-sized enterprises as well, even those who only operate in their home country. While understanding and managing exchange rate risk is a subject of obvious importance to business owners, investors should be familiar with it as well because of the huge impact it can have on.Which types of risk are companies exposed to?

Answer 1

Companies are exposed to Business Risks, Systemic Risks, Operational Risks, and Market Risks including Exchange Rate Risks. Also to mention liquidity, credit and solvency risks which may lead the company to be terminated. Market risk occurs when the company set's up huge hopes in issuing IPO and gets failed, or buys the other company's stake and price fluctuations may not be in favor, or invest in a foreign portfolio but exchange rate may not be so convincing/favorable that the investment may not settle more than expected. Operational risks takes place where the company isn't earning enough revenue or not making sales growth performance enough, or due to high crunch in employees leaving the company etc. Liquidity risk occurs when company is not able to meet it's current cash or short term debts and runs out of money to operate on it's daily operations. Solvency risk is a kind of a risk where the company makes recurrent losses in it's every quarter that runs out of the assets and goes bankrupt. These are all different types of risks that companies are exposed to.