Question

Difference between economic exposure and translation exposure

Answer 1

Economic exposure is transaction exposure as well as operating exposure which is related to future cash flows. These cash flows are not realised or contracted for and the exposure is more anticipatory in nature. Economic exposure can arise due to change in future sales, volume, pricing or cost profile.

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Answer 2

Answer:

Transaction vs Economic Exposure. 'Transaction vs Economic Exposure' is equivalent to comparing short term vs. long-term impact on cash flow changes due to forex fluctuations in the market. Managing both transaction exposure and economic exposure is linked to cash flows management.

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