### Volatility risk Definition

Volatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a probability measure of the thread, an exchange rate movement is to an investors portfolio in a foreign currency. The volatility of the exchange rate is measured as standard deviation over a dataset of exchange rate movements.

A far more sophisticated extension of this model is the Value at Risk method, which helps to determine the actual risk exposure to a portfolio of several currencies.