Types of Foreign Exchange (Currency) Exposure

Foreign exchange exposure is classified into three types viz. Transaction, Translation and Economic Exposure. Transaction exposure deals with actual foreign currency transaction. Translation exposure deals with the accounting representation and economic exposure deals with little macro level exposure which may be true for the whole industry rather than just the firm under concern. Foreign exchange exposure is said to exist for a business or a firm when the value of its future cash flows is dependent on the value of foreign currency / currencies. If a British firm sells products to a US Firm, cash inflow of British firm is … Continue reading Types of Foreign Exchange (Currency) Exposure