Foreign Exchange Exposure- Economic, Transaction
Not what you're looking for?
Please be as detailed as possible:
A) Define foreign exchange exposure for a firm. Is a purely domestic firm subject to some foreign exchange exposure? If yes, why?
B) What are the key differences among economic exposure, transaction exposure, and translation exposure?
Purchase this Solution
Solution Summary
The solution describes economic, transaction and translation exposures and answers whether a purely domestic firm is exposed to foreign exchange exposure.
Solution Preview
A) Foreign exchange exposure: Fluctuations in exchange rate exposes the firm's revenues, costs, operating cash flows and hence their market value to substantial fluctuations. This is known as foreign exchange exposure. Firms which have transactions in multiple countries - exports and imports of goods and services, foreign borrowing and lending, foreign portfolio and direct investment etc are all directly exposed to this fluctuation. Even purely domestic firms which have absolutely no cross border transactions are also exposed because their customers, suppliers and competitors are exposed.
Suppose a purely US firm is manufacturing cars for the domestic market. But it has a supplier of parts which in turn imports components from Japan. The supplier will price the parts depending on the $/Yen exchange rate and therefore the firm will be exposed to the foreign exchange fluctuations.
B)
Economic exposure: This is much broader than Transaction exposure( see below for ...
Purchase this Solution
Free BrainMass Quizzes
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.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.