Exchange Rate Risk

Overview

What it means and why it exists

Exchange rate risk is the possibility that changing prices between currencies or crypto assets affect the value of receivables, payments, settlement proceeds or treasury balances.

How it works

If an invoice is priced in dollars but paid in BTC, the amount of BTC owed depends on a quotation rate. If the merchant holds BTC before converting to fiat, its realized dollar value can rise or fall. Businesses manage this through quote locks, immediate conversion, exposure limits or carefully designed hedging policies.

Technical details worth understanding

Risk arises at multiple points: price quotation, payment detection, waiting for confirmations, conversion execution and treasury holding. Even stablecoins can deviate from their intended peg or trade with spreads. Accounting should preserve original invoice currency, received asset amount, timestamp and executed conversion proceeds separately.

What can go wrong

A quote lock protects the customer from price changes only under defined terms; it does not necessarily eliminate the merchant's market exposure. Volatile prices can create underpayments after a quote expires. Hedging introduces its own costs and counterparty risks and should not be presented as free protection.

Practical checks

Separate the quote timestamp from the payment-confirmation and conversion timestamps. Track the asset quantity actually held during each interval and calculate realized proceeds after fees. A business may decide to accept temporary exposure, but that decision should be explicit and proportionate to its ability to absorb sudden market moves.

Related concepts

Crypto Settlement, Crypto Payout, Settlement Reconciliation.

Further reading

Bank for International Settlements — Payment and Market Infrastructures.