Transaction Risk
The risk
arises due to fluctuation of currency rate. Transaction risk are short term in
nature and typically relates to normal trading activities i.e. Export and
import with payment and receipt in future. These risk effect the cash flow and
therefore requires financial manager attention.
Characteristics of Transaction Risk
1.
Short Term cash Flow implication
Transaction risk involves short term cash flow implications.
For example business has made sale to foreign country and expects to receive
the payment in 15 days. Because the payment is to be received in 15 days so
there is a risk involved which may result due change in currency rate.
2.
Transaction Risk can be Hedged
Transaction risk can be hedged by using different hedging
techniques.
