Transaction Exposure

This chapter and the next chapter introduce and discuss foreign exchange exposure in the context of firms’ exposure to foreign exchange rate fluctuations. The types of foreign exchange exposure, the measurement of foreign exchange exposure, and the management of foreign exchange exposure will be examined, which will utilise the knowledge acquired in the previous chapters on foreign exchange rate determination, international parities, and foreign exchange derivatives. In particular, the use of foreign exchange derivatives in managing foreign exchange exposure or hedging foreign exchange rate risks will be discussed and different approaches to managing foreign exchange exposure will be compared.