Foreign Exchange Risk refers to the potential financial loss that can occur when the value of one currency fluctuates against another. This risk is particularly relevant for businesses and investors engaged in international transactions, as changes in exchange rates can affect profits, costs, and overall financial performance. Companies that operate globally often deal with multiple currencies, making them vulnerable to these fluctuations. For instance, if a U.S. company sells products in Europe and the Euro weakens against the U.S. Dollar, the revenue received in Euros will be worth less when converted back to dollars, impacting the company's bottom line.