FX Risk
Category: payment
The risk of loss from fluctuating exchange rates between the time of sale and payment receipt.
FX risk (Foreign Exchange risk or currency risk) is the potential for financial loss due to fluctuations in exchange rates between the time a transaction is agreed and when payment is settled. In cross-border e-commerce, sellers face FX risk when pricing products in foreign currencies, receiving payments with delay, or holding foreign currency balances. Hedging strategies include forward contracts, currency options, and natural hedging.
Examples
- • A US seller pricing products in EUR faces FX risk if the EUR weakens against the USD between listing and receiving payment.
- • Amazon's 14-day payment cycle means sellers are exposed to FX risk for 2 weeks on international sales.
- • Large sellers can use forward contracts to lock in exchange rates for expected future payments, reducing FX uncertainty.