myz-vgb.ru A Business Encyclopedia

Foreign Exchange Exposure

Definition: Foreign Exchange Exposure refers to the risk associated with the foreign exchange rates that change frequently and can have an adverse effect on the financial transactions denominated in some foreign currency rather than the domestic currency of the company.

In other words, the firm’s risk that its future cash flows get affected by the change in the value of the foreign currency, in which it has maintained its books of accounts (balance sheet), due to the volatility of the foreign exchange rates is termed as foreign exchange exposure.

It is not only those firms who directly make the financial transactions in the foreign currency denominations faces the risk of foreign exposure, but also, the other firms who are indirectly related to the foreign currency is exposed to foreign currency risk.

For example, if Indian company is competing against the products imported from China and if the Chinese yuan per Indian rupee falls, then the importers enjoy decreased cost advantage over the Indian company. This shows, that the companies not having any direct link to the forex do get affected by the change in the foreign currency.

Types of Foreign Exchange Exposure

Foreign Exchange Exposure

  1. Transaction Exposure
  2. Operating Exposure
  3. Translation Exposure

Out of these three risks, the first two risks, i.e. transaction risk and the operating risk are called “cash flow exposure” or “economic exposure”, while the translation risk is called the “accounting exposure”.

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


types of informal communicationexample of oligopoliesexplain seasonal unemploymentexplicit cost implicit costdefine operantdefinition divestmentinternal database marketingutility approach in microeconomicsexamples of id ego superegoformula for debtors collection periodpaused meaningrefreshment trainingdefine restructurewhat are sampling distributionsto outsource definitionnike distribution channel strategypaired comparison scalecardinal and ordinalwhat is the erg theorysemantic differential scalescatter diagram in statisticsstraddling definedebtors turnover formulaadams theory of motivationmeaning arbitragefactors affecting elasticity of demandsuperego definitionclassical organizational theoriesmacro and micro environment in marketing managementintermediaries definition marketingnarrow hindi meaningwhat is indifference curve analysis what are its propertiescarrot stiksdemand pull and cost push inflation graphjohari widowmoral sausionindifference curve consumer equilibriumfayol's administrative theoryfrontal attack in marketingdeterminants of consumer buying behaviourtheory x and theory y douglas mcgregordelphi forecasting methodmonetisation definitionwhat is meant by repo rate and reverse repo ratecause of cost push inflationdefinition of galloping inflationwhat is the formula for inventory turnovermeaning of shortcomings in hindiequity linked savings schemes elssdefinition of e-retailingsemantic differential scale examplesdefine breakeven pointproduction function formula exampleteleological ethics definitiondefinition of hybridsdefine operant conditioning theorywhat is scalar chainbases for market segmentationhrm meaning and definitiondefinition of payback periodcyclical unemploymenwhat are the trait theories of personalityfinance lease and operating lease definitionordinal scale exampleshow to compute net profit margindivestment meanspaired comparisonsvertical marketing channel definitionbank neft timingspacman strategydefinition of hire purchase agreementlong term bank loan advantages and disadvantagesdef of contingencydegrees of price elasticity of demand with exampleseconomic trend definitionadvantages and disadvantages of a loan