The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows. To illustrate how exchange rate can affect an investor operating in a foreign market. Pin By Amelia Ivana On Spm Interest Rate Swap Comparative Advantage Finance Managing Economic Risk T. . The variability in the current accounts balance of the balance of payments. Unexpected changes in relative economic conditions. A change in the dollar against the pound on the other hand would have a greater effect. They can short the currency artificially driving its value down. The risk that a positive net present value NPV project could turn into a negative NPV project because of changes in the exchange rate between two countries. The cost of a unit of currency in terms of another. Foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations. The type of exc...