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Nematrian Reference Library

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Summary "At the firm level, currency risk is called exposure. The globalization of the business environment has turned exposure into a general management responsibility. Exposure is traditionally divided in three areas: transaction exposure, economic exposure, and translation exposure (balance sheet exposure). Transaction exposure refers to the currency risk of transactions denominated in foreign currency, for example, exports or imports. Economic exposure measures the degree to which a firm's expected cash flows are affected by unexpected changes in exchange rates. Translation exposure measures potential accounting-based changes in a firm's consolidated statements that result from a change in a change in exchange rates."

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