transaction exposure

Foreign currency exposures are generally categorized into the following three distinct types: transaction exposure, economic exposure, and translation exposure.

If the bid is accepted and a receivable is paid the firm then faces a transaction exposure, so a firm may prefer to manage contingent exposures.

Investors and multinational corporations must assess and manage international risks such as political risk and foreign exchange risk, including transaction exposure, economic exposure, and translation exposure.

There has been some research on the risks firms must consider when operating in many countries, such as the three kinds of foreign exchange exposure for various future time horizons: transactions exposure, accounting exposure, and economic exposure.

A firm has transaction exposure whenever it has contractual cash flows (receivables and payables) whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency.

Transaction exposure is often managed either with the use of the money markets, foreign exchange derivatives such as forward contracts, futures contracts, options, and swaps, or with operational techniques such as currency invoicing, leading and lagging of receipts and payments, and exposure netting.

To combat the associated foreign exchange risks, companies have implemented many of the following tactics and strategies; First, multinational companies have to assess at the individual country and consolidated levels three kinds of foreign exchange exposure for various future time horizons, transactions exposure, accounting exposure, and economic exposure.