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Principal Market Risks
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The principal market risks which could arise from deferred or spot transactions are as follows :
1. Price Risk It is usual for goods purchased by an exporter at a fixed price to be sold at world markets at a variable index or to be bought at a variable price and to be sold at a fixed price. Meanwhile if there is a change in the prices during the time elapsed the profit rates of the exporter or the importer will vary. For example: In deferred exports, if exchange rates change the profit of the exporter or the importer will be affected as a consequence of this transaction.
2. Foreign Exchange Risk Foreign Exchange risk, are the positive or negative changes due to certain factors (political events, deficit in balance of payments, etc) occurring in the value of currency units of the national currencies against foreign currencies. The foreign exchange risk, as a consequence of the changes in the currency rates is reflected on the balance sheets of companies or in the investment portfolios as profit or loss .
3. Interest Risk Interest risk is a risk that is encountered following changes in the interest rates and this risk affects negatively or positively the earnings expected from any investment or influences the borrowings made by the companies. Because the interest rate affects directly the cash flows to be obtained or to be transferred at maturity. Risk as something that we encounter in every domain in life, becomes more important when financial markets are concerned. Source: www.dtm.gov.tr
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