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ACCA Strategic Professional · Advanced Financial Management · Management of international trade and finance

Which statement best describes economic exposure for a multinational company?

Economic exposure is the effect of unexpected exchange rate changes on the present value of a firm's future operating cash flows and its competitive position. It differs from transaction exposure, which concerns specific contracted flows, and translation exposure, which concerns consolidation of foreign subsidiaries.

  1. AThe effect of unexpected exchange rate movements on the present value of future operating cash flows and competitivenessCorrect
  2. BThe risk that a receivable denominated in foreign currency changes in sterling value before settlement
  3. CThe change in reported consolidated net assets when foreign subsidiary statements are translated
  4. DThe risk that a foreign government restricts remittance of dividends

Explanation

Economic exposure is the long-term effect of exchange rate changes on a firm's competitive position and the value of its future cash flows. The second option describes transaction exposure and the third translation exposure. The fourth is a political or blocked funds risk.

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