Foreign Exchange Exposures:

Foreign exchange exposures refer to the risks faced by businesses and individuals due to fluctuations in exchange rates. There are three main types of foreign exchange exposures:

1. Transaction Exposure: Transaction exposure arises from the potential impact of exchange rate fluctuations on the value of future cash flows associated with international transactions.
2. Translation Exposure: Translation exposure, also known as accounting exposure, occurs when the financial statements of a company’s foreign subsidiaries are translated into the reporting currency, resulting in gains or losses due to exchange rate movements.
3. Economic Exposure: Economic exposure relates to the impact of exchange rate fluctuations on the overall competitiveness and profitability of a company in the global market.