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Foreign exchange exposure is classified into three types viz. Transaction, Translation and Economic Exposure. Transaction exposure deals with actual foreign currency transaction. Translation exposure deals with the accounting representation and economic exposure deals with little macro level exposure which may be true for the whole industry rather than just the firm under concern. Foreign exchange exposure is said to exist for a business or a firm when the value of its future cash flows is dependent on the value of foreign currency / currencies. If a British firm sells products to a US Firm, cash inflow of British firm is exposed to foreign exchange and in a case of the US based firm cash outflow is exposed to foreign exchange. Why we are so skeptical about this exposure? Simple! It is because the exchange rates tend to change or fluctuate.
Agree with expert ansewrs above
I agree with & endorse Mr.Vaiyapuri's excellent and insightful submission, it makes perfect sense.
Thanx for the invitation
