A customer based in the UK exports automotive parts to the US. His main competitor is in France? What type of exposure to currency risk is posed by movements in EUR/USD?
A) Transaction exposure
B) Translation exposure
C) Economic exposure
D) None

Question

Quizplus · Accepted Answer

The customer in the UK who exports automotive parts to the US is already exposed to transaction exposure, as they will be receiving payment in USD. However, movements in EUR/USD also pose economic exposure as their main competitor is in France and fluctuations in the exchange rate can affect the competitiveness of their prices and market share. Translation exposure does not apply in this scenario as there is no need to convert financial statements from one currency to another for reporting purposes.

A Customer Based in the UK Exports Automotive Parts to the US