What is an example of foreign currency risk?

Foreign currency risk, often referred to as exchange rate risk, arises when a client has investments that are denominated in a foreign currency. In this case, fluctuations in currency rates can directly impact the value of those investments. If a local resident client holds assets in a foreign currency, any changes in the exchange rate may result in a loss or gain when converted back to the local currency.

This type of risk is particularly relevant for investors who are exposed to international markets, as changes in exchange rates can significantly affect the returns on their investments. It's important for investors to be aware of this risk so that they can make informed decisions regarding currency exposure within their portfolios.

The other options describe different types of financial risks or situations but do not specifically pertain to fluctuations in currency rates impacting an investment’s value. Therefore, the scenario of a local resident client facing fluctuations in currency rates aptly illustrates foreign currency risk.