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

see EXCHANGE RATE EXPOSURE.
References in periodicals archive ?
In this paper, the IRP is revisited to explore the implications of the market deviations from Interest Rate Parity for a firm's transaction exposure management.
Such companies typically face three different types of FX exposure: transaction exposure, translation exposure and economic exposure.
Timko could have hedged its transaction exposure through the use of various financial contracts.
Or, as ah alternative to Letters of Credit, how might A-1 Lanes protect its transaction exposure?
Chapter 8 deals with currency issues such as exchange rates, transaction exposure, and types of banking institutions.
(3) Accounting exposure, transaction exposure or strategic/long-term exposure are alternative categories that focus more on the source of exposure.
The costs associated with transaction exposure will continue to be borne by the U.K.
What these buyers ignore is the cost of transferring the transaction exposure (i.e., exchange risk) to the supplier and the cost savings opportunities that might be available.
It has a transaction exposure because of the time lag between when it commits to pay in the foreign currency and when it actually makes the payment.
Participation in international markets may result in a foreign exchange risk known as transaction exposure. This risk occurs when a company has a payable (or receivable) denominated in a foreign currency (FC).
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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