Currency Risk is the risk associated with making an investment in a security denominated in a foreign currency. An investor may have their return negatively impacted as a result of changes in the value of their domestic currency relative to the currency in which the investment is denominated.
Applying "Currency Risk" to Securities Exams:
Currency Risk is something that all investors must take into consideration when making an investment in a security denominated in a foreign currency. If the value of the domestic currency increases relative to the value of the foreign currency in which investment is denominated the investor’s return when converted back into the domestic currency will be negatively impacted. The investor will receive less of the domestic currency.