The potential effect of exchange rate fluctuations on future cash flows of the direct foreign investment is expressed as _____ exposure.
A) translation
B) transaction
C) conversion
D) economic

Question

Quizplus · Accepted Answer

Economic exposure refers to the potential effect of exchange rate fluctuations on the future cash flows of a direct foreign investment. Economic exposure is different from translation exposure, which refers to the impact of exchange rate fluctuations on the translation of financial statements from one currency to another, and transaction exposure, which refers to the impact of exchange rate fluctuations on the settlement of a transaction denominated in a foreign currency. Conversion exposure is not a commonly used term in this context.

The Potential Effect of Exchange Rate Fluctuations on Future Cash