Foreign-currency-based

Describing a financial transaction, asset, liability, or economic activity whose value, pricing, or denomination is expressed in a currency other than the domestic currency of the entity or individual involved. This encompasses a wide range of situations, including international trade, investments across borders, and debt or income streams tied to a currency other than one's own. The use of foreign currencies introduces exchange rate risk, impacting the value of these instruments depending on currency fluctuations. The term highlights the impact of global financial flows on domestic economies and actors. It is critical to assess and mitigate the potential risks and opportunities associated with currency value swings in these situations.

Foreign-currency-based meaning with examples

• A multinational corporation operates with foreign-currency-based revenue streams from sales in multiple international markets, requiring careful currency hedging strategies. Its profitability depends on the strength of the euro against the dollar. The firm monitors exchange rate movements constantly, anticipating the impact on its earnings and implementing forward contracts to minimize exposure to adverse currency fluctuations. This international focus is a core aspect of the company's growth.
• An investor holds a portfolio of foreign-currency-based bonds issued by a government in a developing country, representing investments denominated in a currency other than the investor's domestic one. The investor must consider the relative creditworthiness of the issuer alongside potential exchange rate risk. A devaluation in the local currency would decrease the value of the bonds from the investors standpoint. Careful due diligence is therefore important.
• A small business in an exporting country has foreign-currency-based invoices for its sales to overseas customers and needs to navigate the intricacies of international payments. It relies on a system of converting currencies to receive funds. Its profitability and even its viability depend on the value of the foreign currency relative to its local currency. It may use tools like currency options to secure and plan.
• A borrower takes out a foreign-currency-based loan from an international bank to finance a large-scale infrastructure project in their home country. The borrower must consider the potential for interest rate fluctuations in the foreign currency alongside the risk of depreciation in their local currency. Both components will impact the repayment amount of the loan in the long term. This adds layers of financial complexity.