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Firm X is a small firm in New York City that produces various metals and sells...

Firm X is a small firm in New York City that produces various metals and sells them to local manufacturers. It has no foreign sales and purchases all supplies and material locally. Does transaction exposure exist for this firm? Does economic exposure exist for this firm?

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Answer #1

No transaction exposure exist for this firm bcoz it is not involved in the international trade

Transaction exposure is defined as level of risk for firm, that Is involved in international trade , specifically, the risk that currency exchange rates will change after a company/ firm has already entered into financial obligations. A high level of exposure to fluctuating exchange rates can lead to major losses for firms.

Now firm does face Economic exposure

Economic exposure is a type of foreign exchange exposure that is caused by the effect of unexpected currency fluctuations on a company’s future cash flows and earnings.

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