Future cash flows due to unexpected changes in exchange rate

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Reference no: EM132055093

Your firm as a subsidiary in the UK. Last year, the assets of the UK subsidiary totaled GBP 10,000,000 and the exchange rate used to convert the value of the assets to USD for the firm's consolidated financial statements was GBP/USD 1.5510, resulting in reported assets of $15,510,000. This year, the UK subsidiary had total assets of GBP 10,000,000 and the spot exchange rate is GBP/USD 1.3140, resulting in reported assets of $13,140,000. This is an example of

A. economic exposure

B. operating exposure.

C. translation exposure.

D. transaction exposure

Hint: Types of Exposure to Currency Risk

Economic Exposures refers to potential changes in all future cash flows due to unexpected changes in exchange rate.

Transaction exposure refers to change in the value of monetary cash flows as a result of unexpected changes in currency values.

Operation Exposure refers to changes in the value of non-monetary (Real and intangible Assets or operating cash flows as a result of unexpected exchange rate changes.

Translation exposure or accounting exposure refers to potential changes in financial accounting statement as a result of changes in currency value.

Reference no: EM132055093

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