Currency Matching and Exchange Rate Risk

Currency Matching involves aligning the currency of an investment’s cash flows with the currency of an investor’s liabilities or expenses to minimize exposure to exchange rate fluctuations.

Exchange Rate Risk (or currency risk) is the potential for financial loss due to changes in the exchange rates between currencies. When cash flows are in a different currency than an investor’s home currency, fluctuations in exchange rates can impact the value of those cash flows when converted back to the home currency.

Essentially, if we take in debt in the same proportions as our revenues are in that currency, we can reduce the risk of exchange rate fluctuations impacting our ability to service that debt.