The following describes a long-run exposure of exchange rate risk. Your firm has subsidiaries throughout the world. Due to the recent depreciation of the dollar against most foreign currencies, the dollar value of your foreign sales has declined as reflected on the parent's financial statements, even though sales growth is strong.

Question

Quizplus · Accepted Answer

Long-run exposure of exchange rate risk typically involves the impact of exchange rate changes on a firm's future cash flows and competitive position, rather than the immediate impact on the dollar value of foreign sales as reflected in financial statements. The scenario described is more indicative of transaction exposure, which deals with the effect of exchange rate movements on the value of already-contracted financial obligations.

The Following Describes a Long-Run Exposure of Exchange Rate Risk