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Transaction and Translation Exposure Essay

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Below is an essay on "Transaction and Translation Exposure" from Anti Essays, your source for research papers, essays, and term paper examples.

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Transaction Exposure
What are the two major forms of currency
risks that a company with subsidiaries
in foreign countries faces?
Transaction (or contractual) exposure
Translation exposure

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What is transaction
exposure?
It refers to gains and losses that may be
incurred, when monetary
transactions are settled in a foreign
currency.

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Example of transactions
exposure?
-A company buys (or sells) on credit a
product that is priced in a foreign
currency.
-A firm borrows (or lends) in a foreign
currency.

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A British company buys
cars from a German firm
-Total contract price Euros 1,000,000
-Payment due in 90 days
-Exchange rate Euros 2 / BP 1
The British firm owes
Euros 1,000,000/ Euros 2 / BP 1 = BP 500,000

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In 90 days the exchange rate
may change to Euro 2.05 / BP 1
Then the British firm owes
Euro 1,000,000/ Euro 2.05 / BP 1 =
487,805 BP
The dealer saves 12,195 BP due to
transaction exposure

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In 90 days the exchange rate may
also change to Euro 1.95/ BP 1
Then the British firm owes
Euro 1,000,000/ Euro 1.95 / BP 1 =
512,821 BP
The dealer pays an extra 12,821 BP due to
transaction exposure

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What is the German firm’s
exposure?
None, it gets paid in EURO and all its
costs are in EURO.

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Should the British firm demand
that the German firm somehow
make up for its transaction
exposure?
Yes. Risk is costly to bear.
After all, the German firm may write the sales
contract for 500,000 British Pounds.
The British firm should consider the
transaction risk exposure as a cost item
in addition to the cost of the cars.

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The second Example:
Beecham 1971
Borrowed SF...

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"Transaction and Translation Exposure". Anti Essays. 11 Dec. 2018

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APA Citation

Transaction and Translation Exposure. Anti Essays. Retrieved December 11, 2018, from the World Wide Web: http://parimatch-stavka7.com/free-essays/Transaction-And-Translation-Exposure-311028.html


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