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Translation, Transaction and Economic Exposure

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What are the different issues involved with translation exposure, transaction exposure and economic exposure? How can companies plan to mitigate the risk of each? What are the opportunity costs associated with measures to mitigate this risk?

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The major issue involved with translation exposure is that an organization's assets may decrease in value if there is a change in the exchange rate that is detrimental to that organization. Companies can plan to mitigate the risk of translation exposure by carefully monitoring the exchange rates and statistically calculating the probability of changes in the exchange rates in the future, and engaging in transactions more heavily when the exchange rates are more favorable for the organization. The major issue involved with transaction exposure is the fact that if the currency exchange ...

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