The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign currency, of the discounted future cash flows generated from foreign investments or operations due to real changes in exchange rates is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D)business risk.

Question

Quizplus · Accepted Answer

Economic exposure refers to the potential impact of fluctuating exchange rates on a firm's future cash flows from foreign investments or operations. This risk is not related to a specific transaction or accounting issue, but rather represents the overall vulnerability of a company's financial performance to currency fluctuations in the global marketplace. Translation exposure mainly deals with the accounting effects of currency fluctuations on financial statements, while transaction exposure relates to the risk of losses from individual foreign currency transactions. Business risk refers to industry-specific risks that are not related to foreign currency fluctuations.

The Risk Exposure Resulting from the Possible Reduction in Terms