Question

In International Finance, what is operating (economic) exposure? justify and provide relevant examples?

Answer 1

Economic exposure is the term which is used to define the risk which is post by foreign exchange rate fluctuations with adverse effect on a company's financial stability.

This economic risk are risk when company invest or operates in more than one country is cash flows and profit margins are affected by the variations by the exchange rate applied to its main operational currency .

it could be exampled through and European company which will be buying United State product to sale in Europe will depend on Dollar and Euro movement and if if the dollar will appreciate, the cost of the firm will rise, so the company must be choosing either to cut the profit margin for keep pricing stable, or to maintain margin which can end up hurting sales.