Discussion of some methods of quantifying exchange rate risk

Abstract

Exchange rate is the price of one currency expressed in terms of another currency. The fluctuation
of the exchange rate depends on both domestic factors and foreign factors, in which changes in interest rate
policies of central banks become a factor that causes exchange rates to fluctuate rapidly, significantly, and
unpredictably. From the beginning of 2022 up to now, inflation has been exploded all over the world, including
the US, EU and developed countries, forcing central banks to apply tight monetary policies by raising interest
rates. During the period from the beginning of 2022 until now, the US Federal Reserve (Fed) has raised
interest rates 8 times with a very high frequency and great intensity, causing the USD to be appreciated
against most currencies, including VND. When the exchange rate fluctuates, it will affect almost all of
economic activities such as import-export activities, foreign investment, international trade competitiveness,
and even businesses and consumers that do not generate receipts or payments in foreign currency.
Therefore, the study of measurement of exchange rate risks has become increasingly important from the
perspectives of both theory and practice.