What is meant by transaction exposure Discuss some of the ri

What is meant by transaction exposure? Discuss some of the risks associated with managing transaction exposure. PROVIDE REFERENCES.

Solution

Answer:-
Transaction exposure refers to risks associated with the companies involved in international trade. For example when the exchange rate changes after the company has already entered into financial obligations. Such fluctuation in exchange rate can lead to major loses for firms. Example of transaction risk management include; hedging which may necessitate the company to purchase foreign currency, or use of currency futures or currency swaps. Risk associated with the political stability of the nation whereby there might erupt civil wars after the financial obligations have been already made. This risk is beyond the control of the company. A nation with political instability makes companies shy away from engaging in business in that nation, to avoid loses.

Reference:-

Managing Transaction Exposure And Economic Exposure. (2015). Global Corporate Finance, 137-154. doi:10.1142/9789814618014_0007 Wood, A. (2015). World Trade Report 2014 - Trade and Development: Recent Trends and the Role of the WTO World Trade Organization, 2014. World Trade Review, 14(03), 546-548. doi:10.1017/s1474745615000269