Economic Exposure and Accounting Exposure

Peijie Wang ()
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Peijie Wang: University of Hull, Business School

Chapter 16 in The Economics of Foreign Exchange and Global Finance, 2009, pp 1-14 from Springer

Abstract: This chapter examines firms’ economic exposure and accounting exposure to foreign exchange risk. Economic exposure measures how the value of a firm, the present value of all future cash flows, will be affected by changes in foreign exchange rates. While future foreign currency receivables/cash inflows or payables/cash outflows give rise to the transaction exposure of a firm to foreign exchange market uncertainties individually and respectively, these future foreign currency cash inflows and cash outflows give rise to the economic exposure of a firm to foreign exchange market uncertainties collectively and as a whole, accompanied by a changing economic environment that affects, among others, the discount rate applied to the firm. Yet, firms with economic exposure do necessarily have transaction exposure.

Keywords: Exchange Rate; Cash Flow; Foreign Exchange; Domestic Currency; Foreign Exchange Rate (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-642-00100-0_16

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DOI: 10.1007/978-3-642-00100-0_16

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