To minimize currency risk, managers should distinguish economic exposure from transaction and translation exposures.

Question

Quizplus · Accepted Answer

Economic exposure reflects the impact of currency fluctuations on a company's future cash flows and market value, while transaction exposure relates to actual cash flows from cross-border transactions, and translation exposure involves the effect of currency fluctuations on reported financial statements. Distinguishing between these helps in applying appropriate hedging strategies to minimize currency risk.

To Minimize Currency Risk, Managers Should Distinguish Economic Exposure from Transaction