Transaction exposure and operating exposure exist because of unexpected changes in future cash flows. The difference between the two is that ________ exposure deals with cash flows already contracted for, while ________ exposure deals with future cash flows that might change because of changes in exchange rates.
A) transaction; operating
B) operating; transaction
C) operating; accounting
D) none of the above

Question

Quizplus · Accepted Answer

Transaction exposure deals with cash flows that are already contracted for, such as invoices or purchase orders denominated in a foreign currency. Operating exposure, on the other hand, deals with the risk of changes in future cash flows that might occur because of changes in exchange rates, such as changes in sales volumes, prices, or input costs due to fluctuations in currency values.

Transaction Exposure and Operating Exposure Exist Because of Unexpected Changes