Which of the following is the best definition of economic exposure?
A) Long-term financial risk arising from permanent changes in prices or other economic fundamentals.
B) A legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed upon today.
C) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
D) Reducing a firm's exposure to price or rate fluctuations.
E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Question

Quizplus · Accepted Answer

Economic exposure refers to the long-term financial risk that a company faces due to changes in exchange rates, which can affect its market value. It encompasses the impact of currency fluctuations on a company's future cash flows, revenues, and ultimately, its market value. This type of exposure is not limited to companies that engage in international trade; it can affect any company that has dealings in foreign currencies.

Which of the Following Is the Best Definition of Economic