What term describes the economic risk arising from fluctuations in foreign currency exchange rates on committed future cash flows?
ATranslation Exposure
BTransaction Exposure
CEconomic Exposure
DInterest Rate Exposure
Explanation
• Transaction Exposure measures gains or losses resulting from foreign currency exchange rate changes prior to settling cash transactions.
• Translation Exposure (Accounting Exposure) arises from converting foreign subsidiary financial statements into parent currency.
• Economic Exposure reflects long-term impacts of exchange rate shifts on firm competitive position and market value.
Exam Relevance
- Topic: International Finance
- Subtopic: Foreign Exchange Risk

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