Share
Explore BrainMass

Small Business Exchange Rate Exposure Assessment

Exchange Rate Exposure Assessment by the sports exports company.

At the current time, The Sports Exports Company is willing to receive payments in British pounds for the monthly exports it sends to the United Kingdom. While all of its receivables are denominated in pounds, it has no payable in pounds or in any other foreign currency. Jim Logan, owner of The Sports Exports want to assess his firms exposure to exchange rate risk.

1. Would you describe the exposure of The Sports Exports Company to exchange rate risk as transaction exposure? Economic exposure? Translation Exposure?

2. Jim Logan is considering a change in the pricing policy in which the importer must pay in dollars, so that Jim will not have to worry about converting pounds to dollars every month. If implemented, would this policy eliminate the transaction exposure of The Sports Exports Company? Would it eliminate Sports Export's economic exposure? Explain.

3. If Jim decides to implement the policy described in the previous question, how would The Sports Exports Company be affected (if at all) by appreciation of the pound? By depreciation of the pound? Would these effects on sports export differ if Jim retained his original policy of pricing the exports in British pounds?

Solution Preview

Exchange Rate Exposure Assessment by The Sports Exports Company.

At the current time, The Sports Exports Company is willing to receive payments in British pounds for the monthly exports it sends to the United Kingdom. While all of its receivables are denominated in pounds, it has no payable in pounds or in any other foreign currency. Jim Logan, owner of The Sports Exports want to assess his firm's exposure to exchange rate risk.

1. Would you describe the exposure of the sports exports company to exchange rate risk as transaction exposure? Economic exposure? Translation Exposure?

As, the individual transactions are affected by change in foreign exchange rate fluctuation, this is a ...

Solution Summary

This answer provides you an excellent discussion on Small Business Exchange Rate Exposure Assessment

$2.19