Consider economic, transaction, and translation exposure. Which of these is easiest to mitigate and what would...

Consider economic, transaction, and translation exposure. Which of these is easiest to mitigate and what would be the most effective way of doing that? Is one a larger danger than the others? Which is most potentially devastating of the three? Why?

Expert Solution

Transaction exposure is the most easiest exposure out of all the three exposures because transaction exposure is a known exposure for the company and it will be having various hedging techniques in order to get over this exposure by taking derivative contracts like futures and options & getting exposed into the forward contracts and entering into the risk sharing agreements.

Yes, all the exposures are not equally devastating as transaction and translation exposure can be mitigated to certain extent but economic exposure is most devastating exposure.

Economic exposure is the most problematic exposure out of all the three exposure because economic exposure are related to unpredictable events in the global economy which can never be predicted in advance so these exposures are leading to a very high risk for the company in the long run so the company's profitability and the earnings as well as the long-term viability are affected so economic exposure is the most devastating exposure out of all three.

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How would you rank the relative importance of transaction exposure, economic exposure, and translation exposure? Explain...

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