Contractual Exposure

Richard Friberg
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Richard Friberg: Stockholm School of Economics

Chapter 8 in Exchange Rates and the Firm, 1999, pp 54-56 from Palgrave Macmillan

Abstract: Abstract Contractual exposure (or transaction exposure) is the sensitivity of future cash flows to exchange rate changes due to past contractual undertakings. That is, it will be the net of accounts receivable and accounts payable (and loan payments) in foreign currencies. Take a simple example. You are the manager of a British firm. You have previously sold some Stilton cheese to a German firm, but since the German firm had three months’ trade credit you will receive the 100,000 D-marks on, say, 30 May. You have also imported some sauerkraut from Germany, the payment for which, 50,000 D-marks, is due on the same date. What is the contractual exposure of this firm to the D-mark? Simply, the net of receivables and payables, that is, 50,000 D-marks. An ongoing firm will typically have in- and outflows at many different dates; one can then calculate the contractual exposure for each date.

Keywords: Exchange Rate; Cash Flow; Foreign Currency; Trade Credit; Exchange Rate Change (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1057/9780333982372_8

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