| Generally, investing in stocks can generate higher | | | | Forex Risk: |
| returns than bonds and real estate. However | | | | Managing foreign exchange (or forex) risk is |
| stocks carry certain investment risks. A | | | | essential to successful investment in the forex |
| successful investor should learn about the | | | | market. |
| different types of investment risk. | | | | Foreign exchange exposure or risk can be |
| Stock Investing Risk: | | | | classified into three types: transaction, translation |
| One of the biggest risks for investors in stock | | | | and economic exposure. |
| market is the economic risk. Bad economy can | | | | Transaction exposure refers to the extent to |
| seriously affect stock market prices and turn | | | | which the future cash transactions of the firm |
| against your investment. | | | | may be affected by any changes in the currency |
| Investing in stocks is subject to business risks. | | | | exchange rate. |
| Your investment can literally go to zero if your | | | | Translation exposure refers to accounting |
| chosen company goes out of business or | | | | exposure. It measures the impact of changes in |
| bankruptcy, but you can reduce this type of risk | | | | exchange rate on the financial statements of the |
| through diversification. If you are properly | | | | group of company. |
| diversified and invested in a wide variety of | | | | Economic exposure measures the impact of |
| stocks, the risks associated with might be | | | | changes in exchange rate on the firm's cash flows |
| controlled or reduced. | | | | and earnings. |
| If you are investing in new or small companies | | | | Most companies attempt to minimize the risk of |
| you might be experiencing growth stock risk. | | | | fluctuating exchange rates by using hedging |
| Growth stocks are very sensitive to the | | | | instruments such as Forward Exchange Contracts, |
| fluctuations in interest rates. Any bad news about | | | | Money Market Hedge, Futures, Options and |
| the company can dramatically decrease the stock | | | | Swaps. |
| price. | | | | |