Hedging - Transactions to reduce the volatility in portfolio value. This is accomplished by taking the opposite side of ones' portfolio exposure similar to insurance. The instruments used are varied and include forwards, futures, options, and combinations of all of them.

Risk - The perceived volatility of any market. The greater the volatility, the greater the risk.

Value at Risk - The total value of a portfolio that could potentially be adversly affected by market movements. A probability factor is normally attached to such a potential event.

Credit Risk - This type of risk deals with the counter party to any fx transaction. An outstanding currency position may not be closed out due to the failure of the counter party for whatever reason.

Devaluation - Simply the decline in value of one currency versus the value of another currency caused by either market forces or by official designated exchange rates.

Blocked Currency - A currency that is not available for trading freely in the open market. It is normally used only for domestic trade.

Country Risk - This risk deals with government intervention or otherwise, central bank intervention excepted. Examples include war, the freezing of foreign funds, political pressures on the banking system, etc.

Replacement Risk - The consequence of settlement risk. If you have not received payment from your counter party, you now have to enter the market and make the necessary purchase/sale to settle your books thus exposing your firm to the prevailing market rates.

Reporting Currency - This is simply the currency used in the reporting of financial documents of a corporation.

Settlement Risk - Risk that relates to making an fx payment to a counter party before the counter payment is received. This risk arises from the possibility that your counter party will never pay you.

Exchange Rate Risk - Deals with the risk associated with the spot price. It is affected by the supply and demand of foreign exchange worldwide.

Economic Exposure - This relates to changing exchange rates and its' affect on the cash flow and earning power of a corporation. Import/Export companies are particularly affected by economic exposure.

Risk Manager - The person entrusted to administer a forex hedging program for a corporation/institution.

Transaction Exposure - Also known as exchange risk. This reflects the potential gain or loss from transactions in fx. These transactions could be attributed to accounts receivable, payable or transactions that may occur in the future, such as being awarded a contract.