Foreign exchange risk is also known as translation risk and it is sometimes captured as a component of market risk. Accounting conventions require quarterly revaluation of these accounts at current spot rates. This revaluation translates the foreign denominated accounts into U.S. dollar terms. Transaction Risk Transaction risk is the risk to earnings or capital arising from problems with service or product delivery. This risk is a function of internal controls, information systems, employee integrity, and operating processes.
Transaction risk exists in all products and services.
Transaction risk is also referred to as operating or operational risk. This risk arises on a daily basis in all banks as transactions are processed. It is a risk that transcends all divisions and products in a bank. Compliance Risk Compliance risk is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the bank's clients may be ambiguous or untested.