Series 82: 3.4.3.1.7. Currency Risk

Taken from our Series 82 Online Guide

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3.4.3.1.7. Currency Risk

Currency risk is the risk that an investment in a foreign security may lose its value due to a strengthening of the U.S. dollar against the foreign country’s currency. For example, imagine that you invest in a Japanese security that is trading on a Japanese exchange. If the dollar strengthens against the Japanese yen, you will get fewer American dollars when you sell your Japanese security. An investor can buy puts against the Japanese yen to protect herself against currency risk.

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SUMMARY TABLE

Type of Investment Risk

Investments Most Affected

Market Risk

Stocks

Credit Risk

Municipal bonds

Corporate bonds

Not U.S. Treasury bonds

Interest Rate Risk

Fixed-income securities, such as bonds and preferred stock

Purchasing Power Risk

Fixed-income securities, such as bonds

Call Risk

Callable bonds

Liquidity Risk

Thinly traded stocks and bonds

DPPs

Municipal securities

Hedge funds

Private placements