Question : Which of the following is not a type of exchange rate exposure?
Option 1: Transaction exposure
Option 2: Translation exposure
Option 3: Economic exposure
Option 4: Currency exposure
Correct Answer: Currency exposure
Solution :
The correct answer is (d) Currency exposure.
Currency exposure is indeed a type of exchange rate exposure. It refers to the risk that arises from fluctuations in currency exchange rates and how it impacts the value of financial transactions denominated in different currencies.
Transaction exposure refers to the risk that arises from contractual cash flows that are denominated in a foreign currency and need to be converted back into the domestic currency.
Translation exposure, also known as accounting exposure, refers to the risk faced by multinational companies when they translate their foreign subsidiary financial statements into the reporting currency.
Economic exposure refers to the risk that arises from the impact of exchange rate fluctuations on a company's overall competitiveness, cash flows, and market value.
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