Chapter 10: Small Business Dilemma, Sports Exports Company Assessment of Exchange Rate Exposure by the Sports Exports Company At the current time, the Sports Exports Company is willing to receive payments in pounds for the monthly exports it sends to the United Kingdom. While all of its receivables are denominated in pounds, it has no payables in British pounds or any other foreign currency. Jim Logan, owner of the Sports Exports Company, wants to assess his firm's exposure to exchange rate risk. 1. Would you describe the exposure Of the Sports Exports Company to exchange rate risk as transaction exposure? Economic exposure? Translation exposure? ANSWER: 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. However, the Sports Exports Company is not exposed to translation exposure because it does not have foreign subsidiaries at the present time. 2. Jim Logan is considering a change in the pricing policy in which the importer must pay
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This note was uploaded on 02/14/2011 for the course FINANCE 640 taught by Professor Sen during the Fall '10 term at UMBC.