Transaction exposure can best be defined as:
A) Reducing a firm's exposure to price or rate fluctuations
B) A financial asset that represents a claim to another financial asset.
C) A plot showing how the value of the firm is affected by changes in prices or rates.
D) Short-run financial risk arising from the need to buy or sell at uncertain prices or rates in the near future.
E) Long-term financial risk arising from permanent changes in prices or other economic fundamentals.

Question

Quizplus · Accepted Answer

Transaction exposure refers to the risk companies face when they have outstanding financial obligations (such as payables and receivables in foreign currencies) that need to be settled in the future, and the value of those obligations may change due to fluctuations in exchange rates or other price changes. This is a short-term risk because it deals with transactions that will be settled in the near future, making choice D the correct definition.

Transaction Exposure Can Best Be Defined As