transaction exposure

Transaction exposure

Risk to a firm with known future cash flows in a foreign currency, that arises from possible changes in the exchange rate. Related: Translation exposure.

Transaction Exposure

In international trade, the risk that exchange rates will change after a company has agreed to a transaction but before it is accomplished, such that it adversely affects the transaction. For example, suppose an American company agrees to buy goods from a British company and settle the transaction in pounds. The American company has the transaction exposure that the pound will appreciate with respect to the U.S. dollar, causing the company to spend more dollars to buy the same number of pounds to be able to settle the transaction.

transaction exposure

The risk of loss caused by changes in currency exchange rates when a company's payables and receivables are denominated in a foreign currency. Derivatives are used to hedge against changes in currency exchange rates and reduce transaction exposure.

transaction exposure

References in periodicals archive ?
The most popular technique of hedging transaction exposure is forward hedge that involves the use of a forward contract to buy or sell an amount of foreign currency at a contractual forward rate.
Transaction exposure relates to transactions carried out in foreign currencies; if the exchange rate moves unfavourably the company may receive less cash than expected.
Timko could have hedged its transaction exposure through the use of various financial contracts.
Chapter 8 deals with currency issues such as exchange rates, transaction exposure, and types of banking institutions.
Transaction exposure refers to the effects of exchange rate risk on specific identifiable currency cash flows.
What these buyers ignore is the cost of transferring the transaction exposure (i.
Participation in international markets may result in a foreign exchange risk known as transaction exposure.
Secondary issues examined include assessing transaction exposure and comparing hedging techniques to effectively manage unwanted exposure.
Transaction exposure exists when a company has a foreign-currency-denominated receivable or payable.

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