U.S.-based Majestic Co. sells products to U.S. consumers and purchases all of its materials from U.S. suppliers. Its main competitor is located in Belgium. Majestic Co. is subject to:
A) economic exposure.
B) translation exposure.
C) transaction exposure.
D) no exposure to exchange rate fluctuations.
Answer Key

Question

Quizplus · Accepted Answer

Majestic Co., despite operating and sourcing within the U.S., is subject to economic exposure because its main competitor is located in Belgium. Changes in exchange rates can affect the competitive position of Majestic Co. by making the Belgian competitor's products more or less expensive for U.S. consumers, thereby influencing Majestic Co.'s revenues and profits.

US-Based Majestic Co