Question

Exchange rate risk only exists if there is exposure which makes the value fluctuate. Use an...

Exchange rate risk only exists if there is exposure which makes the value fluctuate. Use an automobile manufacturer in Europe as an example; There are three types of exposure listed in your text. (Transaction/Economic/Translation) Which one (pick one) do you think poses the most risk to the value of a company? Why

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Answer #2

The economic risk poses the value of a company because of any economic policies or any economic situations. The economic situations, policies can impact the production in automobile industry.

For example: If I am producing fuel powered vehicles and suddenly government imposes heavy tax on consumers who purchases fuel engine vehicles (the tax is imposed to decrease the consumption of fuel vehicle to decrease the pollution level), the will be an adverse demand shock. The market demand for vehicles fall and the manufacturer would suffer a huge loss.

The economic scenario can change anytime and can impact anyone in many ways.

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