Professional Documents
Culture Documents
FOREIGN CURRENCY
Transaction, Translation
and Economic Exposures
Kinds of Exposures
• Exchange rates change continuously which affects
performance of multinational corporations.
• Risk emanating from changes in exchange rates is referred
as exposures.
• Impact of changing exchange rates in the income
statement, values of assets and liabilities or business
outlook are of three distinct types:
• Translation Exposure
• Transaction Exposure
• Economic Exposure
Money
Market Risk Sharing
Hedge
Futures Exposure
Hedge Netting
TRANSLATION EXPOSURE
ECONOMIC EXPOSURE
Can be hedged
Cannot be hedged
Beta Coefficient
Cov (R , F)
p(R R )(F F)
Var(F) p(F F)2
Beta coefficient = 3,800/2/3= 5,700