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Transaction exposure refers to the risk faced by companies due to fluctuations in exchange rates between the time a transaction is initiated and when it is settled. In international business finance, this exposure arises when a firm engages in transactions denominated in foreign currencies, such as export sales, import purchases, or borrowing and lending in foreign currencies. The value of these future cash flows, when converted into the firm’s home currency, may change due to exchange rate movements, leading to potential gains or losses. Transaction exposure thus directly impacts a company’s cash flows, profitability, and overall financial position. To manage transaction exposure, firms use a variety of techniques that can be broadly categorized into short-term and long-term strategies. Short-term techniques aim to minimize the immediate risks associated with specific transactions, while long-term _____ ________ _______ __________ _____ _______ ______ __________ _________ _______.
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