It is possible for transaction exposure to be positive and translation exposure in the same currency to be
A)always positive
B)exactly offsetting
C)negative
D)synonymous

Question

Quizplus · Accepted Answer

Transaction exposure and translation exposure measure different risks. Transaction exposure refers to the potential change in cash flows due to changes in exchange rates affecting transactions (e.g., receivables, payables) that a company has already entered into. Translation exposure, on the other hand, relates to the impact of exchange rate changes on the reported financial statements of a company, particularly the assets, liabilities, and equity denominated in foreign currencies. It's possible for a company to have a positive transaction exposure (benefiting from a currency movement) while having a negative translation exposure (suffering on the balance sheet from the same currency movement), as these exposures depend on different sets of currency-denominated items.

It Is Possible for Transaction Exposure to Be Positive and Translation