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Home > Volatility risk

The volatility of the exchange rate is measured as standard deviation over a dataset of exchange rate movements.

A far more sophisticated extension of this model is the Value at Risk method, which helps to determine the actual risk exposure to a portfolio of several currencies.

1 Consequences of currency volatility

• Reduces volume of international trade
• Reduces long term capital flows
• Increases speculation
• Increases resources absorbed in risk management
• Economic policy making becomes difficult

2 See also

• Exchange rate
• Standard deviation
• Risk management
• Value at Risk method
• Market risk

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Topics: Volatility Risk Exchange Rate Management Method Value...

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VolatilityVolatility is the standard deviation of the change in value of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over that time period. Volatility is typically expressed in annualized terms, and i Volatility smileIn economics, a volatility smile is a common graphical shape that results from plotting the strike price and implied volatility of a group of options with the same expiration date. It is used by investors to price options in the foreign exchange and capit Volatility riskVolatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a probability measure of the thread, an exchange rate movement is to an investors portfolio in a foreign currency. The volatility o