Question

______________the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.

       Transaction exposure
       Translation exposure
       Economic exposure

Answer 1

Solution:

Economic Exposure is the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.

The essence of economic exposure is that the changes in exchange rates affect significantly the cost of a firm's inputs and the prices of its outputs and thereby influence its competitive position substantially.

[Transaction exposure is the uncertainity involved with respect to existing foreign currency denominated transactions.

Translation exposure is the exchange gain or loss occuring from the difference in the exchange rates at the beginning and at the end of the accounting period.]