The Procurement Glossary » Currency (FX) Risk

Currency (FX) Risk

Finance & Payments

Also known as: FX Risk

Definition

The risk that exchange-rate movements change the cost of goods bought in a foreign currency.

Explanation

Cross-border sourcing exposes buyers to FX swings that can erase negotiated savings. Managing it — via currency clauses, hedging or local sourcing — protects budgets. It is a key consideration in global supplier selection.

Example

A weakening ringgit raises the cost of USD-priced imports, so the buyer negotiates a currency clause.

Related terms

• Landed Cost — The total cost of a product delivered to the buyer's door, including price, freight, insurance, duties and handling.
• Index-Linked Pricing — A contract pricing mechanism where the price moves automatically with a published index rather than by renegotiation.
• Supply Risk — The risk that supply of a good or service is disrupted, constrained or made more costly.
• Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.

Frequently Asked Questions

What is Currency (FX) Risk?

The risk that exchange-rate movements change the cost of goods bought in a foreign currency. Cross-border sourcing exposes buyers to FX swings that can erase negotiated savings. Managing it — via currency clauses, hedging or local sourcing — protects budgets. It is a key consideration in global supplier selection.

Can you give an example of Currency (FX) Risk?

A weakening ringgit raises the cost of USD-priced imports, so the buyer negotiates a currency clause.

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