Economic and Transaction Exposure
Not what you're looking for?
How is economic exposure different from transaction exposure? Please give an example of each.
Purchase this Solution
Solution Summary
The solution explains how the economic exposure is different from transaction exposure.
Solution Preview
Economic Exposure (also called operating exposure, competitive exposure, or revenue exposure) measures the impact of an exchange rate change on the net present value of expected future cash flows from a foreign investment project. It measures the degree to which a company's expected cash flows are affected by unexpected changes in exchange rates. This exposure cannot be hedged. Thus if the home currency appreciates unexpectedly, exports would be hit. Or if the home currency depreciates unexpectedly, imports would be hit.
Economic exposure is the extent to which the economic value of a company can decline because of exchange rate changes. The decline can be due to a decline in the level of expected cash flows or an increase in the risk of these cash flows. An example of economic exposure is the devaluation of the currency of a country in which a company's products are sold. The devaluation makes its products relatively more expensive and it would be less competitive in the foreign country (as well as domestically), resulting in lower sales and lower profits.
Example: Dollar ...
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Basics of corporate finance
These questions will test you on your knowledge of finance.