Class notes Chapter 10 Class notes Chapter 10 Measuring Exposure to Exchange Rate Fluctuations FX risk in general terms.
Risk is uncertainty, particularly uncertainty about future cash flows.
FX risk is the uncertainty about future cash flows that arises because of uncertain future changes in FX rates. Exposure and risk are related but different concepts. A firm has FX exposure when its profits, net cash flows, or market value can change because of changes in FX rates. Exposure is defined as the degree to which a company is affected by exchange rate changes. Three general categories of exposure to FX risk Transaction Exposure measures changes in the value of outstanding financial obligations as a result on changes in FX rates.