How would you define transaction exposure? How is it different from economic exposure?
Discuss and compare hedging transaction exposure using the forward contract versus money market instruments. When do alternative hedging approaches produce the same result?
Should a firm hedge? Why or why not?
How would you define economic exposure to exchange risk?
Explain the competitive and conversion effects of exchange rate changes on firm’s operating cash flow.
What are the advantages and disadvantages to a firm of financial hedging of its operating exposure compared to operational hedges (such as relocating its manufacturing site)?
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