Transaction Exposure

Transaction Exposure -...

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Transaction exposure is of significant concern for the firm that has operations  outside of it’s home nation. If a firm does not take steps to protect itself it may  take significant damage from transaction losses.  “Transaction exposure can  have a substantial impact on a firm's earnings. It is not un-usual for a currency to  change by as much as 10 percent in a given year. If an exporter denominates its  exports in a foreign currency, a 10 percent decline in that currency will reduce the  dollar value of its receivables by 10 percent.” The expansion into markets in  Brazil by Pepsico brings with it many questions about how this will affect the  firm’s transaction risk. First the firm must estimate the cash flow amounts that will  be coming in Brazilian currency and then estimate the fluctuations that are likely  in the currency to determine the firm’s transaction exposure. There are many 
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This note was uploaded on 08/17/2011 for the course BUS 200 taught by Professor Torres during the Spring '11 term at University of Phoenix.

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Transaction Exposure -...

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