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Foreign Exchange Exposure |
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Transaction Exposure
Transaction exposure results from transacting business in a currency that is different from the currency of the company’s home base, such as when companies import or export goods and services denominated in foreign currencies, or when they borrow or invest in foreign currencies. This mainly impacts a company’s profit and loss and cash flow, and the negative aspects of such exposure can be mitigated through the use of foreign exchange products, such as forward contracts, which lock in a specific exchange rate for settlement at the time the payment is due.
Translation Exposure
Translation exposure occurs when the financial statements of a foreign subsidiary are combined into the parent company’s statements and translated into the parent company’s reporting base currency. The translation of foreign assets and liabilities into the parent company’s home currency for accounting purposes principally impacts a company’s balance sheet and can be mitigated through the use of foreign exchange products such as a forward contract or a currency option.
Economic Exposure
Economic exposure relates to a company’s exposure to foreign markets and suppliers. It is also referred to as competitive, strategic or operational exposure and is more difficult to identify than translation or transaction exposure. The classification of economic exposure involves in-depth prognostication to determine how sensitive a company’s business is to changes in exchange rates, as the value of a company is affected by the changes in the exchange rates on both its existing and potential products and markets. Available products in the foreign exchange market such spot transactions, forward contracts, foreign exchange swaps, currency swaps, currency options, and foreign exchange futures contracts can address any problems that might arise with economic exposure.
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| Symbol |
Rate |
| GBP:CHF |
2.007608 |
| GBP:JPY |
182.222212 |
| GBP:USD |
1.757198 |
| NZD:USD |
0.658397 |
| EUR:CAD |
1.503413 |
| EUR:CHF |
1.557680 |
| EUR:GBP |
0.775889 |
| EUR:JPY |
141.384148 |
| EUR:USD |
1.363390 |
| AUD:JPY |
80.415028 |
| AUD:USD |
0.775455 |
| USD:CAD |
1.102702 |
| USD:CHF |
1.142505 |
| USD:JPY |
103.700427 |
| USD:SEK |
7.185028 |
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Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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© ForexCenter.com, 2005, All Rights Reserved
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