What is the relationship of currency risk in a floating exchange rate

What is the relationship of currency risk in a floating exchange rate system to the future exchange rate changes?

What will be an ideal response?

ANSWER

Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, you can use data to measure the average historical dispersion (standard deviation or volatility) of the distribution. The higher this volatility, the riskier positions in this currency are.