Assume that Atlanta Co. is producing motorcycles and selling them to U.S. customers. Atlanta Co. obtains all of its supplies from American firms and has no competition in the U.S. It has one major competitor in Japan. Now assume that Phoenix Co. is producing office furniture and obtains its supplies from a Canadian firm. Based on this information, Atlanta Co. has ____ exposure and Phoenix Co. has ____ exposure.

Question

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Atlanta Co. has economic exposure because its sales and profits could be affected by changes in exchange rates between the U.S. dollar and Japanese yen. Phoenix Co. has transaction exposure because its costs could be affected by changes in exchange rates between the Canadian dollar and its functional currency (presumably the U.S. dollar). Translation exposure is not relevant in this scenario since neither company has foreign subsidiaries whose financial statements need to be translated into their functional currencies.

Assume That Atlanta Co