FX Risk Tool
A rigorous and transparent framework to measure the risk of a sharp currency depreciation in 166 countries covering a variety of exchange rate regimes.
Following the release of our Sovereign Risk Tool, we have introduced a complementary tool measuring currency risk. Our FX Risk Tool measures the risk of a sharp currency depreciation that could be triggered by speculative attacks, broader sell-offs, or by monetary authorities no longer able to maintain a fixed or managed exchange rate regime.
The FX Risk Tool provides early warning indicators highlighting currency risk in developed, emerging and frontier markets. The tool helps analysts to assess the value at risk of their exposures and it can offer added value in managing carry strategies.
The FX Risk Tool is also complementary to our Exchange Rate Service. The latter lays out our baseline view on the currencies' valuations, and the FX Risk Tool signals the probability of a major depreciation or a currency crisis and thus a risk to the baseline.
WHAT THE SERVICE INCLUDES
Quarterly FX risk scores: updated monthly, based on historical data from 2000 and our forecasts, providing a forward-looking indicator
Spreadsheet-based analytical indicator: allows easy comparison of FX risk and its drivers (17 sub-components across a range of exchange rate regimes, utilising more than 22 data series) across countries, regions and time
Expert support: our risk-modelling team is available to answer questions about our analysis and forecasts
Read an example of our FX Risk research insights, Navigating the next EM currency crisis, pinpointing currency risk hotspots
METHODOLOGICAL HIGHLIGHTS
Rigorously back-tested results predicting the likelihood of a currency crisis and ability to manage carry strategies and assess value at risk
Based on the leading research on financial and currency crises and, in particular, on the research literature on early warning indicators
Forward-looking measure, using both established international data sources and our one-year-ahead forecasts for 166 countries, presented as a score from 1 to 10 (where 10 is high risk)
Draws on the expertise of our team of 250 economists, who monitor and analyse the data and the risk measures
ideal for:
Asset Managers
- Provides a transparent and unbiased assessment of FX risk, offering a forward-looking and leading indicator that highlights risks of sharp currency movements
- Helps to improve investment decisions, by identifying potential sharp movements in FX which can be used to inform hedging strategies
Corporates and banks
- Monitors the vulnerability of currencies to a sharp depreciation which could have implications for customer demand, the price of inputs and the creditworthiness of suppliers
- Helps to measure the risk of de-pegging episodes and value-at-risk
Read an example of how the FX Risk tool can be used in practice to manage currency risk in the context of strategies and value-at-risk.
Oxford Economics' services are provided to clients for research purposes only and do not constitute a recommendation to sell or buy any security or currency of any of the countries mentioned therein. Oxford Economics is not a registered credit rating agency and does not provide an opinion regarding the creditworthiness of an entity, a debt or financial obligation, debt security, preferred share or other financial instrument, or of an issuer of such a debt or financial obligation, debt security, preferred share or other financial instrument. Oxford Economics research is published with the understanding that neither the analyst nor Oxford Economics are providing investment advice; anyone who needs investment advice should consult an investment professional.
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