A key issue facing financial executives of multinational firms is exposure to exchange rate changes.

a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?

b. Describe at least three circumstances under which economic exposure is likely to exist?

c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b?

d. What is exchange risk, as distinct from exposure?

Answer rating: 100% (QA)

a Accounting exposure results when exchange rate changes alter the home currency value of foreign currencydenominated assets and liabilities The big d... View the full answer