Exchange rates always fluctuate. Most of the time, they do so within a range that will be narrow or wide depending on market conditions. At other times, however, exchange rates can rapidly move outside their range and reach unexpected levels. This makes exchange rates inherently volatile.
Foreign exchange risk - also known as exchange rate risk or currency risk - is the risk related to the impact of exchange rate fluctuations on the company's revenue, costs, cash flow and profits. It arises from the possibility that an unfavourable fluctuation in the exchange rate causes the company to either receive or pay an amount in a currency that is less or higher than initally expected.
Companies that work in multiple currencies are particularly exposed to foreign exchange risk. For example companies where revenue from exports is received in foreign currency, or companies that imports or exports or recieves other forms of income in foreign currency.