Transaction exposure is defined as:
A) the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes,
B) the extent to which the value of the firm would be affected by unanticipated changes in exchange rates,
C) the potential that the firm's consolidated financial statement can be affected by changes in exchange rates,
D) ex post and ex ante currency exposures,

Question

Quizplus · Accepted Answer

Transaction exposure refers to the sensitivity of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. It is the risk that the exchange rate movements will result in financial losses for the firm. A change in the exchange rate can affect the value of the cash flows, assets and liabilities, and profits of the firm in foreign currencies. The firm may have transaction exposure if it has accounts receivables, accounts payables, or other contractual cash flows in foreign currencies.

Transaction Exposure Is Defined As