Question

19. Foreign exchange rate risk: How is transaction exposure different from operating exposure?

20. International debt: What are Yankee bonds?

Answer 1

19. Transaction exposure is difference from operating exposure in following ways-

A. Transaction exposure is change in reported owners equity in consolidated financial statements which can be attributed to change in exchange rates. While operating exposure are changed in expected future cash flows rising from exchange in an unexpected movement of exchange rates.

B. Transaction exposure is said to be a contractual obligation while operating exposure focuses on change in foreign currency cash flows.

C. transaction exposure is the most easily identifiable exchange risk while operating exposure is very complex to recognise.

D.transaction exposure is more technical and tactical in nature while and operating exposure is more of a fundamental in nature.

E.transaction exposure are used by most of the companies while operating exposure are hedged through natural hedging and companies restrain from adopting any kind of hedging strategies as they are highly unpredictable.