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Foreign exchange exposure refers to the degree to which the financial position, cash flows, profitability, assets, liabilities, or overall market value of a business may be affected by fluctuations in foreign exchange rates. It arises when a firm conducts international business transactions, holds assets or liabilities denominated in foreign currencies, or competes in markets where exchange rate movements influence its prices and costs. Since exchange rates are continuously changing, multinational corporations and firms engaged in international trade face uncertainty regarding the domestic-currency value of foreign-currency receipts and payments. Foreign exchange exposure is therefore an important issue in International Business Finance because it directly affects profitability, cash flows, financial statements, competitiveness, and firm value. Foreign exchange exposure is generally classified into three major types: transaction exposure, translation exposure, and economic exposure. Although all three arise from exchange rate fluctuations, they differ in their nature, time horizon, and impact on the business. Transaction exposure arises when a firm has contractual foreign-currency receivables or payables whose domestic-currency value may change between the date of the transaction and the date of actual settlement. It is therefore associated with specific international business transactions and creates a potential gain or loss because of exchange rate movements. For example, suppose an Indian company exports machinery to a US customer for USD 1 million, with payment due after three months. On the date of the export contract, the exchange rate is ₹83 per US dollar. The expected value of the receivable _________ ________ _______ _________ _________ _________.
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