Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is subject to:
A)economic exposure.
B)transaction exposure.
C)translation exposure.
D)economic and transaction exposure.

Question

Quizplus · Accepted Answer

Economic exposure refers to the risk that a company's cash flow, earnings, or future cash flows will change due to changes in exchange rates. Since Vada, Inc. competes with a company in Japan but sells in Australia while invoicing in U.S. dollars, fluctuations in exchange rates could affect its competitive position and pricing, hence it faces economic exposure.

Vada, Inc Exports Computers to Australia Invoiced in U