What is the primary difference between transaction exposure and accounting exposure?
A) Transaction exposure results from changes in currency exchange rates, whereas accounting exposure is the result of changes in accounting method.
B) Transaction exposure results in changes in cash flow, whereas accounting exposure does not necessarily result in changes in cash flow.
C) Transaction exposure must be hedged, but accounting exposure does not need to be hedged.
D) Transaction exposure affects only monetary assets and liabilities, whereas accounting exposure affects all assets and liabilities.

Question

Quizplus · Accepted Answer

The primary difference between transaction exposure and accounting exposure is that transaction exposure results in changes in cash flow, as it involves the actual transactions of buying and selling goods or services in different currencies, whereas accounting exposure is related to the financial statements of a company and does not necessarily result in changes in cash flow. Therefore, option B is correct. Options A, C, and D are incorrect as they do not accurately capture the difference between transaction and accounting exposure.

What Is the Primary Difference Between Transaction Exposure and Accounting