Foreign exchange risk is the level of uncertainty that a company must handle for changes in foreign exchange rates that will unfavourably affect the money the company receives for goods and services over a period.
For example, a corporation sells goods to a foreign company. They ship the goods today, but will not receive payment for various days, weeks or months. During this grace period, the exchange rates vary. At the time of settlement, when the foreign company pays the domestic company for the goods, the rates may have travelled to a level that is less than what the company contemplated. As a result, the company may vary a loss or the profits may erode.