[jyd]

A U.S firm sold $3 million in finished goods to a firm in Thailand for delivery in six months with the contract to be invoiced in dollars. In the ensuing period, the value of the bhat declined by 80%, which meant that Thai firm could not afford to purchase the dollars necessary to fulfill the contract. This is an example of:

A.
translation exposure.

B.
economic exposure.

C.
purchasing power risk.

D.
transactions risk.

the answer is a, but i chose d..do not really know the difference between economic and transaction risks, since they both deal with fluctuations in exchange rates..

the solutions says that economic risks relate to the cash flows, but how can i differentiate that from transaction risk in this question??

please help!

[CPYay]

It's been a while since I studied foreign currency, but from the options available, only translation exposure deals specifically with exchanges in currencies. The others could be risks involving the same currency (e.g. dollar for dollar).

AUD - 92
BEC - 84
FAR - 89
REG - 84

Mailed application! Hoping to be licensed by year-end!

[jyd]

sorry my bad..the correct answer is actually b) economic exposure.

[Author]

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