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chapter 10 - 1 Would you describe the exposure of the...

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1. Would you describe the exposure of the Sports Exports Company to exchange rate risk as transaction exposure? Economic exposure? Translation exposure? The Sports Exports Company is subject to transaction exposure, because the business requires foreign exchange transactions in the future. Since transaction exposure is a subset of economic exposure, the Sports Exports Company is also subject to economic exposure. But, the Sports Exports Company is not exposed to translation exposure because it is not foreign subsidiaries at the present time. 2. Jim Logan is considering a change in the pricing policy in which the importer must pay in dollars, so that Jim will not have to worry about converting pounds to dollars every month. If implemented, would this policy eliminate the transaction exposure of the Sports Exports Company? Would it eliminate Sports Exports’ economic exposure? Explain. The policy would eliminate transaction exposure, because there is no longer be any need to convert foreign currency into dollars.
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