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 rate.
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 risk that arises from the changes in exchange rates between the time when a financial transaction is initiated and when it is settled. This risk affects the realizable value of the firm's contractual cash flows denominated in foreign currencies. Therefore, option A is the correct choice as it accurately describes the transaction exposure.

Transaction Exposure Is Defined as