Question

You are an American, working for a hospital. The hospital agreed to buy from a German exporter a big piece of diagnostic equipment. The hospital agreed to pay the German exporter €1 million in 90 days. The extent to which the expense of that trade is affected by fluctuations in foreign exchange values is known as:

translation exposure.

financial exposure.

transaction exposure.

economic exposure.

Answer 1

The answer is option c- transaction exposure.

Exposure to transactions is the level of volatility faced by businesses engaged in foreign trade. In particular, there is the possibility that currency exchange rates will fluctuate after a firm has already committed a financial commitment. A high degree of vulnerability to exchange-rate movements will result in significant capital losses for these foreign companies.

You are an American, working for a hospital. The hospital agreed to buy from a German exporter a big piece of diagnostic equipment. The hospital agreed to pay the German exporter €1 million in 90 days. The extent to which the expense of that trade is affected by fluctuations in foreign exchange values is known as: transaction exposure.