Question

mcq. foreign exchange risk is a positive function of a) foreign exchange exposure. b) variance of unanticipated changes in exchange rates. c) both foreign exchange exposure and variance unanticipated changes in exchange rates.d)none of these​

Answer 1

Answer:

Explanation:

In the present era of increasing globalization and heightened currency volatility, changes in exchange rates have a substantial influence on companies’ operations and profitability. Exchange rate volatility affects not just multinationals and large corporations, but it also affects small and medium-sized enterprises, including those who only operate in their home country. While understanding and managing exchange rate risk is a subject of obvious importance to business owners, investors should also be familiar with it because of the huge impact it can have on their holdings.

What Is Economic Exposure?

Companies are exposed to three types of risk caused by currency volatility:

Transaction exposure arises from the effect that exchange rate fluctuations have on a company’s obligations to make or receive payments denominated in foreign currency. This type of exposure is short-term to medium-term in nature.

Translation exposure arises from the effect of currency fluctuations on a company’s consolidated financial statements, particularly when it has foreign subsidiaries. This type of exposure is medium-term to long-term.

Economic (or operating) exposure is lesser-known than the previous two but is a significant risk nevertheless. It is caused by the effect of unexpected currency fluctuations on a company’s future cash flows and market value and is long-term in nature. The impact can be substantial, as unanticipated exchange rate changes can greatly affect a company’s competitive position, even if it does not operate or sell overseas. For example, a U.S. furniture manufacturer who only sells locally still has to contend with imports from Asia and Europe, which may get cheaper and thus more competitive if the dollar strengthens markedly.

Note that economic exposure deals with unexpected changes in exchange rates – which by definition are impossible to predict – since a company’s management bases their budgets and forecasts on certain assumptions, which represents their expected change in currency rates. In addition, while transaction and translation exposure can be accurately estimated and therefore hedged, economic exposure is difficult to quantify precisely and as a result, is challenging to hedge.

Answer 2

c) both foreign exchange exposure and variance unanticipated changes in exchange rates.

Explanation:

• Forex risk is a currency risk and is a financial risk that exists when a transaction is dominated by another currency.  

• When the foreign exchange risk is positive when the risk of a company that undertakes the financial transactions in the foreign currency experiences higher volatility.

• It also positive function when there are some unanticipated changes that take place in the exchange rates.

Learn more about the foreign exchange risk is a positive function of a) foreign exchange exposure. b) variance of unanticipated changes in exchange rates. c) both foreign exchange exposure and variance unanticipated changes in exchange rates.d)none of these​.

• brainly.in/question/17961053 answered by bsainathreddy4.