Volatility of foreign exchange rate/currency has become a major challenge for both global and domestic businesses. Events like Geopolitical risks, trade wars, oil price volatility, communal disharmony, and terrorism, technology disruptions are major factors that suddenly impact the currency movement and lead to business losses despite using hedging tools. Central banks’ Interest rate policy changes also impact the treasury income of banks, financial institutions, and investment banks. Even though it is difficult to predict currency volatility, it is necessary to understand the factors impacting volatility and model them using relevant tools.
This currency risk assessment tool tries to create a model that can capture holistically most of the factors that impact currency volatility, and using an algorithm that generates a risk score. This score guides management/ regulator to take strategic decisions on currency exposure management. These scores also help in decision-making in terms of trading, investment, and hedging decisions of various currencies.
