What is a potential effect of currency risk for companies involved in international transactions?

When companies engage in international transactions, they expose themselves to currency risk, which arises from the potential fluctuations in exchange rates between currencies. Exchange rates can vary significantly due to economic factors, geopolitical events, or changes in market sentiment.

If a company expects to receive payments in a foreign currency, any decline in the value of that currency relative to the company's home currency can lead to a reduction in the amount of revenue when it is converted back. Conversely, if the company's costs are denominated in a foreign currency and that currency strengthens against the home currency, the company could face higher costs. Thus, loss from exchange rate fluctuations effectively captures the potential financial impact of currency risk on a company’s profitability and financial health when engaging in international commerce.

While the other potential effects like increased credit ratings, improved cash flow, and higher employee satisfaction are beneficial outcomes, they do not specifically relate to the inherent risks and challenges posed by currency fluctuations in international transactions.