Characteristic of Economic Risk
1.
Long Term in nature
Economic risk is associated with long term cash flow
implication. For example the disposal of a subsidiary in foreign currency after
several year or long term loan to be paid in 20 years.
2.
Term of Trade
The other major reason for economic risk that term of trade
may be changed between two countries. For example one currency is persisting
rising against other due to the competitiveness.
3.
Hedging is difficult
Due to long term nature of risk, these risks are difficult to
hedge, the other reason that these risk associate with the economic environment
and general economic environment change is not supposed to be hedged.
4.
Hedging by portfolio
The risk
may be hedged by investment portfolio in different currencies. But this
techniques is altogether a different areas and require a lot resources and
skills.
