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Economic Exposure

What is 'Economic Exposure'

A type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company’s future cash flows. Also known as operating exposure, economic exposure can have a substantial impact on a company’s market value, since it has far-reaching effects and is long-term in nature.

Explaining 'Economic Exposure'

For example, assume that a large U.S. company that gets about 50% of its revenues from overseas markets has factored in a gradual decline of the U.S. dollar against major global currencies – say 2% per annum – into its operating forecasts for the next few years. If the U.S. dollar appreciates instead of declining gradually in the years ahead, this would represent economic exposure for the company. The dollar’s strength means that the 50% of revenues and cash flows the company receives from overseas will be lower when converted back into dollars, which will have a negative effect on its profitability and valuation.


Further Reading


The effects of industry structure on economic exposure
www.sciencedirect.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Economic exposure and integrated risk managementEconomic exposure and integrated risk management
onlinelibrary.wiley.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Firm strategy and economic exposure to foreign exchange rate movementsFirm strategy and economic exposure to foreign exchange rate movements
link.springer.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Transaction versus economic exposure: which has greater cash flow consequences?Transaction versus economic exposure: which has greater cash flow consequences?
www.sciencedirect.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Hedging foreign exchange exposure: risk reduction from transaction and translation hedgingHedging foreign exchange exposure: risk reduction from transaction and translation hedging
onlinelibrary.wiley.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Exchange Rate Economic Exposure Under Collusive Pricing and Hedging Using Asian Currency OptionsExchange Rate Economic Exposure Under Collusive Pricing and Hedging Using Asian Currency Options
ideas.repec.org [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

A primer on the exposure of non-financial corporations to foreign exchange rate riskA primer on the exposure of non-financial corporations to foreign exchange rate risk
www.sciencedirect.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

A revisit to economic exposure of US multinational corporationsA revisit to economic exposure of US multinational corporations
www.sciencedirect.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …

Economics of exposure management of foreign subsidiaries of multinational corporationsEconomics of exposure management of foreign subsidiaries of multinational corporations
link.springer.com [PDF]
… Please enable JavaScript to use all the features on this page. Elsevier. Journal of International Money and Finance. Volume 20, Issue 2, April 2001, Pages 149-164. Journal of International Money and Finance. The effects of industry structure on economic exposure …



FAQ


What is economic exposure?

Economic exposure rises as currency volatility increases and is difficult to measure.

How does economic exposure rise with currency volatility?

As the value of a country's currency fluctuates, investors are exposed to changes in the value of their investments.

Why is it difficult to measure economic exposure?

It can be hard to determine how much money an investor has invested in a foreign country.

What can you do if you want to reduce your economic exposure?

You should diversify your portfolio by investing in different countries' currencies.

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