Question

Economic exposure refers to the extent to which a company’s managerial team is exposed to international experience, and how that exposure influences a company’s financial performance.

True or False

Answer 1

FALSE

Economic exposures refer to the effects on a company's future cash flows, foreign investments and earnings, caused by the unexpected fluctuations in foreign exchange rates. In other words, it is also called the measure of the change in the Net present value of a company due to unexpected fluctuations in the currency. It is mainly experienced by Multinational corporations and companies involved in imports and exports. However, in recent times even domestic companies which are not involved in imports or exports have also started experiencing economic exposure. Economic exposure is a type of foreign exchange exposure and is also known as operating exposure. Risk of economic exposure depends on the currency fluctuations or ongoing volatility in the currency. Hedging can be done to mitigiate the risk but economic exposure is difficult to measure which makes it difficult to hedge.

Hence, economic exposure is not related to the extent to which a company's managerial team is exposed to international experience, and how that exposure influences a company's financial performance. Therefore, the given statement is FALSE.