What is the term used to describe the risk of adverse changes in exchange rates affecting foreign currency payments?

The term that accurately describes the risk of adverse changes in exchange rates affecting foreign currency payments is foreign currency risk. This type of risk arises when there are fluctuations in the exchange rates, which can lead to potential losses for businesses or investors who are dealing with transactions in foreign currencies.

When an organization or individual makes a payment in a foreign currency, the value of that currency relative to their home currency can change unexpectedly, leading to higher costs or reduced returns. Understanding foreign currency risk is essential for businesses engaged in international trade or investment, as it directly impacts cash flow, profit margins, and overall financial performance.

Managing this risk typically involves strategies such as hedging, which can stabilize cash flows despite currency fluctuations, thereby allowing parties to mitigate potential adverse financial impacts.