Foreign exchange risk in terms of global financial crisis

Abstract

Fx risk is one of the most important types of risk of financial activity. In practice, this risk comprises several risk aspects related to currencies exchanging, however most often it is identified with unexpected changes of their prices. In terms of the global financial crisis of 2007–2009, the fx risk has raised significantly, revealing a high daily volatility, increased spreads and the reversal of long-term exchange rate trends. Such increased risk especially influenced emerging markets economies, including Poland. Its consequence was quick strengthening of Polish currency at the beginning of the global crisis followed by a very sudden fall of its value. This event led to a substantial increase of banking risk, investment funds and corporate operations. It changed the structure of GDP sources as well as generated huge losses for exporting companies, using currency options hedging strategies.