A type of risk (specifically, a source of non-traded market risk) that arises from positions related to investments in currencies other than an entity’s functional currency. It is usually defined as the potential losses arising from changes in the exchange rate (involving certain currencies) that could have a negative impact on the foreign exchange reserves that form part of an entity’s consolidated shareholders’ equity (at group level).

It is a specific type of foreign exchange risk (FX risk) that, per se, represents the potential adverse effect arising from changes in the exchange rate between certain pairs of currencies that could cause a negative impact on the valuation of an entity’s assets and liabilities in the financial statements and on other certain factors including earnings and capital ratios.

Structural foreign exchange risk is “structural” in the sense that the unfavorable changes in exchange rates impact the inner structure of group-level financial reporting relationships, and hence cause its consolidation equity to change (where the impact comes through foreign exchange reserves held by the entity(s) involved).