Explain the concept of Exposure.

Explain the concept of Exposure.

This refers to the degree to which a company is affected by exchange rate changes.
This impact can be measured in several ways.
There are several approaches to the measurement and management of accounting exposure,
including both translation and transaction exposure.
Hedging a particular currency exposure means establishing an offsetting currency position so that whatever is lost or gained on the original currency exposure is exactly offset by a corresponding foreign exchange gain or loss on the currency hedge. Regardless of what happens to the future exchange rate, therefore, hedging locks in a dollar (home currency) value for the currency exposure. In this way, hedging can protect a firm from foreign exchange risk, which is the risk of valuation changes resulting
from unforeseen currency movements.

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maurice.mutuku answered the question on April 25, 2019 at 06:10

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