Question

Operating exposure can be defined as:
a. the future home currency values of the firm's assets and liabilities
b. the extent to which the firm's operating cash flows would be affected by random changes in exchange rates
c. the sensitivity of realized domestic currency values of the firm's contractual cash flow denominated in foreign currencies to unexpected exchange rate changes
d. the potential that the firm's consolidated financial statement can be affected by changes in exchange rates

Answer 1

An operating exposure is the extent to which the firm's operating cash flows would be affected by random changes in exchange rates

Basically, an operating exposure means the measure of the change in the future cash flows of a company as a result of unexpected change of exchange rate.

• Operating exposure is also known as economic exposure

In conclusion, the Option B is correct because an operating exposure is the extent to which the firm's operating cash flows would be affected by random changes in exchange rates

Read more about operating cash-flow:

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