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Which of the following is an example of economic exposure but not an example of transaction...

Which of the following is an example of economic exposure but not an example of transaction exposure?

A decrease in the peso's value decreases a U.S. firm's dollar value of peso receivables

An increase in the pound's value increases a U.S. firm's cost of British pound payables.

An increase in the dollar's value impacts a U.S. firm's domestic sales because foreign competitors are able to increase their sales to U.S. customers.

A decrease in the Swiss franc's value decreases the dollar value of interest payments on a Swiss deposit sent to a U.S. firm by a Swiss bank.

Solutions

Expert Solution

Transaction exposures are due to the risks in foreign currency movements as importer or exporter which coverts the currency to either a favorable or unfavorable position. In the above options, Option 1, option 2 and Option 4 are concerned with transaction exposures as they are directly concerned with currency conversion. Option 3 is an economic exposure as the currency movement affects the competitive environment and not a direct currency impact to the firm concerned here.

Answer is An increase in the dollar's value impacts a U.S. firm's domestic sales because foreign competitors are able to increase their sales to U.S. customers.

jeff jeffy answered 2 years ago
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