The risk that a firm's value will fluctuate due to exchange price movements

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Economic exposure refers to the risk that a firm's value will fluctuate due to exchange price movements. Economic exposure considers the long-term effects of changes in exchange rates on a firm's future cash flows, market share, and competitive position. On the other hand, transaction exposure refers to the risk arising from actual foreign currency transactions, while translation exposure refers to the risk of conversion of foreign subsidiaries' financial statements into the parent company's currency. Political risk refers to the risk of loss arising from political changes or instability in a country.

The Risk That a Firm's Value Will Fluctuate Due to Exchange