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Economic Exposure and Accounting Exposure

In: The Economics of Foreign Exchange and Global Finance

Author

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  • Peijie Wang

    (University of Hull, Business School)

Abstract

This chapter examines firms’ economic exposure and accounting exposure to foreign exchange risk. Economic exposure measures how the value of a firm, the present value of all future cash flows, will be affected by changes in foreign exchange rates. While future foreign currency receivables/cash inflows or payables/cash outflows give rise to the transaction exposure of a firm to foreign exchange market uncertainties individually and respectively, these future foreign currency cash inflows and cash outflows give rise to the economic exposure of a firm to foreign exchange market uncertainties collectively and as a whole, accompanied by a changing economic environment that affects, among others, the discount rate applied to the firm. Yet, firms with economic exposure do necessarily have transaction exposure.

Suggested Citation

  • Peijie Wang, 2009. "Economic Exposure and Accounting Exposure," Springer Books, in: The Economics of Foreign Exchange and Global Finance, chapter 16, pages 1-14, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-00100-0_16
    DOI: 10.1007/978-3-642-00100-0_16
    as

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